Question

In: Accounting

Carly’s gross estate includes 1,500 shares of stock of Macon Corporation (basis to Carly of $1,200,000,...

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?   

Solutions

Expert Solution

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

Related Solutions

The gross estate of Raul, decedent, includes stock in Iris Corporation (E & P of $6...
The gross estate of Raul, decedent, includes stock in Iris Corporation (E & P of $6 million) valued at $5 million. At the time of his death, Raul owned 60% of the Iris stock outstanding, and he had a basis of $840,000 in the stock. The death taxes and funeral and administration expenses related to Raul's estate amount to S2 n1 illion, and the adjusted gross estate is $14 million. The remainder of the Iris stock is O\Vned by Monica,...
The gross estate of Raul, decedent, includes stock in Iris Corporation (E & P of $8,000,000)...
The gross estate of Raul, decedent, includes stock in Iris Corporation (E & P of $8,000,000) valued at $6,000,000. At the time of his death, Raul owned 60% of the Iris stock outstanding and he had a basis of $840,000 in the stock. The death taxes and funeral and administration expenses related to Raul’s estate amount to $2,000,000, and the adjusted gross estate is $16,000,000. The remainder of the Iris stock is owned by Monica, Raul’s daughter and sole heir...
1. The gross estate of Juanita, decedent, includes stock in Soap Corporation (E&P of $3,000,000) valued...
1. The gross estate of Juanita, decedent, includes stock in Soap Corporation (E&P of $3,000,000) valued at $2,500,000. At the time of his death, Juanita owned 60% of the Soap stock outstanding, and she had an adjusted basis of $420,000 in the stock. The death taxes and funeral and administrative expenses related to Juanita’s estate amount to $1,000,000 and the adjusted gross estate is $7,000,000. The remainder of the Soap stock is owned by Merry, Juanita’s daughter and sole heir...
A corporation has 1,500 shares of 10 percent, $40 par-value preferred stock and 10,000 shares of...
A corporation has 1,500 shares of 10 percent, $40 par-value preferred stock and 10,000 shares of $3 par-value common stock outstanding. If the board of the directors decides to distribute dividends totaling $38,000, the common stockholders will receive a dividend of
Coleman Corporation (E&P of $720,000) has 3,000 shares of common stock outstanding. Fred owns 1,500 shares...
Coleman Corporation (E&P of $720,000) has 3,000 shares of common stock outstanding. Fred owns 1,500 shares and his wife, Angelia, owns 1,500 shares. Fred and Angelia each have a basis of $90,000 in their Coleman Corporation stock. In the current year, Coleman Corporation redeems 1,000 shares from Fred for $250,000. With respect to the distribution in redemption of Fred's stock in Coleman Corporation: Group of answer choices Fred has dividend income of $250,000. Fred has a capital gain of $190,000...
You own 1,500 shares of stock in a company that is 25% debt financed. The stock...
You own 1,500 shares of stock in a company that is 25% debt financed. The stock price is $50 per share. You want to use homemade leverage to unlever your shares to replicate an all-equity capital structure. What amount will you borrow or lend? Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,000.50 should be entered as 1000.50.
Coronado Industries has issued 1,500 shares of common stock and 300 shares of preferred stock for a lump sum
Coronado Industries has issued 1,500 shares of common stock and 300 shares of preferred stock for a lump sum of $55,000 cash. 1). Give the entry for the issuance assuming the par value of the common stock was $5 and the fair value $30, and the par value of the preferred stock was $40 and the fair value $50. (Each valuation is on a per share basis and there are ready markets for each stock.) 2). Give the entry for...
ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares...
ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares of 6 percent preferred stock (annual dividend=$6) and 300,000 semi-annual bonds of $1,000 face value with a coupon rate of 8 percent semiannual bonds outstanding. The bonds were issued five years ago with maturity of 30 years when they were issued. The market price of common stock is $46 per share and has a beta of 0.85, the preferred stock currently sells for $90...
Bellsouth Corporation had a current share price of $48.60, and the firm had 1,200,000 shares of...
Bellsouth Corporation had a current share price of $48.60, and the firm had 1,200,000 shares of stock outstanding. The company is considering an investment project that requires an immediate $15,400,000 investment but will produce a stream of cash flow of $5,950,000 each year over the next 4 years then close. There is no salvage value. If Bellsouth Corporation invests in the project, what would the new share price be? Bellsouth's cost of capital is 9.8%. (Hint: consider how the project...
At December 31, 2014, Emley Company had 1,200,000 shares of common stock outstanding. On October 1,...
At December 31, 2014, Emley Company had 1,200,000 shares of common stock outstanding. On October 1, 2015, an additional 400,000 shares of common stock were issued. In addition, Emley had $10,000,000 of 6% convertible bonds outstanding at December 31, 2014, which are convertible into 800,000 shares of common stock. No bonds were converted into common stock in 2015. The net income for the year ended December 31, 2015, was $3,750,000. Assuming the income tax rate was 30%, what should be...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT