The adjusted gross estate of Keith,decedent,is $4 million.Included in the gross estate is stock in Gold Corporation (E & P of $900,000),a closely held corporation,valued at $2 million as of the date of Keith's death.Keith had acquired the stock twelve years ago at a cost of $280,000.Death taxes and funeral and administration expenses for Keith's estate are $500,000.Gold Corporation redeems one-fourth of the stock from Keith's estate in a § 303 redemption to pay death taxes using property with a fair market value of $500,000 and an adjusted basis to Gold Corporation of $350,000.

Question

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Gold Corporation will recognize a gain on the distribution of appreciated property to redeem the estate's stock.The basis of property received in a stock redemption is its fair market value.The property distribution will result in a reduction in Gold's E & P in an amount not in excess of the ratable share of the E & P attributable to the stock redeemed.The basis rules for stock acquired from a decedent apply to give the estate a stepped-up basis.Thus,the basis of the stock redeemed will be $500,000 and the estate will not have a gain on the redemption.

The Adjusted Gross Estate of Keith,decedent,is $4 Million