Jack Corporation redeems 200 shares of its stock for $100,000 from Junior, who inherited the stock from his father, Ken. The stock's FMV on Ken's date of death was $90,000. Ken's basis in the stock was $40,000. Jack Corporation had an E&P balance of $300,000. If the redemption qualifies under Sec. 303, Junior will

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Under Sec. 303, the redemption is treated as a sale or exchange, not a dividend, to cover estate taxes and expenses. Junior's basis is the FMV at Ken's death ($90,000), so the capital gain is $100,000 - $90,000 = $10,000.

Jack Corporation Redeems 200 Shares of Its Stock for $100,000