The term “accrued income” refers to the money earned by a person, but not yet received by that person.
“Accrued income is that earned but not yet due or payable to the trustee, while accumulated income represents that paid to, but not distributed by the trustee.” Matter of Schlinger, 48 Misc.2d 346 (1965).
Prior to 1934, income accrued before the death of a cash basis taxpayer and thereafter received by his estate escaped taxation. It was not taxable to the decedent because not received by him, and was not taxable to his estate because held to be corpus, not income of the estate. To correct this situation, Section 42 of the Revenue Act of 1934, 48 Stat. 680, 26 U.S.C.A. § 42, required income accrued at the taxpayer’s death to be included in his final return. This sometimes resulted in hardship because amounts which the taxpayer would have received over a number of years were made returnable in the year of his death, thereby boosting the income for that year into a higher bracket. To remedy this hardship, the Revenue Act of 1942 added Section 126(a) to the 1939 Code. It provides that accrued income is not to be included in the decedent’s last return but is to be deemed income of his estate. For accounting purposes Section 126(a) and its corresponding section in the 1954 Code, Section 691(a), employ a fiction in order to transfer the tax burden resulting from “bunching” income in the year of death from the decedent to his estate, while making sure that the amount is taxed to someone. There is no injustice in this: the estate may have deductions to set off against its gross income which would be unavailable to the decedent on his personal return.” Freund’s Estate v. CIR, 303 F.2d 30 (2d Cir. 1962)