In: Accounting
Carly’s gross estate includes 1,500 shares of stock of Macon Corporation (basis to Carly of $1,200,000, fair market value on date of death of $8,250,000). The estate will incur $5,500,000 in death taxes and funeral and administration expenses, and the adjusted gross estate is $22,000,000. Joni, Carly’s daughter and sole heir of her estate, owns the remaining 500 shares of Macon Corporation’s shares outstanding. In the current year, Macon (E&P of $10,000,000) redeems all the estate’s 1,500 shares for $8,250,000.
(1) Does Macon’s redemption of the estate’s stock
qualify as a redemption to pay death taxes under § 303? Explain and
show supporting computations.
(2) How much of the redemption qualifies under §
303?
(3) Can the rest of the proceeds be treated as received
from the sale of stock under one of the other qualifying
redemptions (not essentially equivalent to a dividend,
substantially disproportionate, or complete termination)? Explain
why or why not and show computations to support your answer.
(4) Without prejudice to your answer in Part (3),
assume that the rest of the proceeds cannot be treated as a sale of
the stock under one of the other qualifying redemptions. What are
the amounts and character of the income the estate must recognize?
A distribution of property to a shareholder by a corporation in redemption of part or all of the stock of such corporation which (for Federal estate tax purposes) is included in determining the gross estate of a decedent, to the extent that the amount of such distribution does not exceed the sum of—
(1)the estate, inheritance, legacy, and succession taxes (including any interest collected as a part of such taxes) imposed because of such decedent’s death, and
(2)the amount of funeral and administration expenses allowable as deductions to the estate under section 2053 (or under section 2106 in the case of the estate of a decedent nonresident, not a citizen of the United States),
shall be treated as a distribution in full payment in exchange for the stock so redeemed.
Ans.1 Yes,
Ans.2
Redemption qualified under § 303
Particulars | $ |
death taxes and funeral and administration expenses | 5,500,000 |
Redemption qualified under § 303 | 5,500,000 |