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It gets worse. The examples above do not include state income taxes. In the Treasury ‘Green Book’, the Treasury indicates that the income would be ‘taxable income to the decedent on the Federal gift or estate tax return or on a separate capital gain return.’ This does not clarify how state income or inheritance taxes may be imposed. In addition, the Green Book conspicuously ignores the estate tax. This means that there would be effectively two or even three death taxes: federal capital gains, possible state capital gains and federal estate taxes.
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