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My wife inherited a sizeable IRA from her mother in September 1999, from which her mother had already been taking the required minumum withdrawals. The IRA was includable in her mother's estate for state (Pennsylvania) and federal estate tax purposes, and since my wife was named as the beneficiary of the IRA, it passed directly to her upon her mother's death. None of the IRA had been contributed on an after-tax basis.

However, since the IRA was the single largest, and most liquid portion, of the total estate my wife withdrew a large sum from the IRA during 2000, all of which was used to pay the federal and state estate taxes.

I have two questions:

1. I assume that the IRA custodian will issue my wife a 1099R at the end of this year for the amount of the withdrawal. How is this withdrawal reported on my wife's and my 1040 tax return in order that we do not pay duplicate tax on this reported "income"? (Do we simply include the entire amount as income, and report it as an itemized tax deduction in the same amount, or other?)

2. Does this IRA withdrawal qualify toward the minimum withdrawal that my wife would have otherwise been required to make in 2000?

Thank you.

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