Your answer referenced the reported "fiscal cliff" change in the estate tax exemption, which didn't address Larry's income tax question.
Internal Revenue Code section 102(a) states: "Gross income does not include the value of property acquired by gift, bequest, devise or inheritance."
The answer to Larry's question is that he does not have to report his inheritance (if realized) as income on his income tax return. This is known as an exclusion, not an exemption.
Larry should not rely on this as legal advice, because he has not retained me as his attorney.
Roger G. Cotner, Grand Haven