Yes-your mom is not required to leave anything to your sister.
I do not think generation taxes would apply-si the IRS would not be a problem.
The answer given does not imply that an attorney-client relationship has been established and your best course of action is to have legal representation in this matter.
I agree with Attorney Pippen. Your mother can leave this inheritance to your nephew or anyone else that she wants. The IRS has nothing to do with this.
*** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state.
What the other attorneys said is correct. The issue here is if your sister ends up obtaining money (from anywhere including this inheritance) and she buys a house with it or puts it in a bank, etc. it is subject to IRS attachment so long as she owns the property and still owes the IRS taxes. Your sister will have a lot fewer problems if she gets on a payment agreement with the IRS so these bank levies and whatnot will not come up and surprise her.
This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/
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