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Unformatted text preview: First, does Sec 303 apply? Is the fair value of the stock > 35% gross estate? Yes, $1M/$2.5M = 40%. and Is the amount of stock redeemed <= qualifying expenditures? Yes, both are $500,000. Tax consequences to Red Corporation : Recognized gain $160,000 [$500,000 – $340,000] (“as if” the land is sold for fair value). Taxable income increases by $160,000. E &P is reduced by the lesser of: (1) the amount distributed $500,000; or (2) 10% of E & P $600,000 (a pro-rata share). E & P is reduced by $500,000. Tax consequences to Edward’s estate : Amount distributed $500,000 Less: basis in Red stock (500,000) [½ fair value on date of death] Recognized gain Five months later Selling price $520,000 Less: basis in land (500,000) [fair value on date of distribution] Recognized LTCG 20,000...
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This note was uploaded on 09/09/2011 for the course TAX 5015 taught by Professor Kelliher,c during the Spring '08 term at University of Central Florida.
- Spring '08