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"The tax implications are no different than if the cash was kept in a bank."

The ever-curious JAFO:
Peter, I rarely question you but are you sure?

No chance IRS would think that the 40k represented income that grandfather had not declared and on which grandfather had not paid income tax? Can the IRS re-open grandfather's past returns? IIRC, failure to declare income does not carry a statute of limitations?

My intent was to say exactly what I said. But I must admit that I didn't elaborate on the thought.

If the grandfather failed to report the income, it would not matter if it were kept in cash or in the bank or in shares of stock. The failure to report would carry the same penalties. If the money came from legitimate sources it would again make no difference how the money was held. If the money is subject to estate taxes (or inheritance taxes for the states that still have those) the taxes are still the same.

Of course, the IRS might think the $40k represented unreported income. But just because that is what they think doesn't make it so. If it is indeed unreported income, there certainly could be some problems down the road. As I mentioned somewhere along the way, it would be important to document to the extent possible the source of the cash, both for inheritance issues and for the deceased's income taxation issues. The cash transaction of depositing the money carries a higher risk of drawing IRS attention than a check deposit of the same amount.

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