Final answer:
Gifts and inheritances are generally not included in gross income for tax purposes. The estate tax applies to property transfers after death but only for estates above a certain value, while the gift tax applies to transfers during life exceeding the annual exclusion.
Step-by-step explanation:
The statement that inheritances are included in gross income is false. Both gifts and inheritances are generally excluded from gross income for tax purposes. Under federal tax laws in the United States, there is a distinction between estate tax and gift tax. The estate tax is levied on the transfer of property when a person dies, but only affects estates that exceed a certain value threshold.
If the estate is worth less than the applicable exclusion amount, the beneficiaries inheriting the property would not be required to pay the tax. On the other hand, the gift tax is paid by the person giving the gift if the value of the gift exceeds the annual exclusion limit, and this tax mechanism was introduced to prevent the avoidance of estate taxes through the transfer of wealth prior to death.