Interesting...this sounds like a tax court case in the making.

Can't answer this for you, but a few considerations:

- The nature of unclaimed property is that it's property that already belongs to you, so as a general rule it wouldn't be taxable income.

- Since this property experienced realized gains, the gain component would seem to fall outside the general rule.

- Tax court has a well-established precedent (Cesarini v. United States, 296 F. Supp. 3 (N.D. Ohio 1969)) that when there is income from found property, it's taxable in the year found.

Putting those three items together would reasonably lead to the conclusion that the cash that represents gain would be taxable in the year recovered. Of course the stock shares had a basis of their FMV on the date of death of the decedent, so only the excess of cash over that basis would be gain.

The more interesting question is whether the taxpayer can at least get LT capital gain/qualified dividend treatment on the gain. Cesarini argued that if they had to recognize income, it should at least be LT capital gain income, but they lost this argument. The facts were pretty different from the current situation though. I'm not aware of any case law or regs that would address this question.