The adjusted gross estate of Debra,decedent,is $5 million.Debra's estate will incur death taxes and funeral and administration expenses of $800,000.Debra's gross estate includes stock in Silver Corporation (fair market value of $2 million,basis to Debra of $900,000).Debra owned 90% of the stock in Silver Corporation.Silver Corporation redeems all of the estate's stock in the corporation for $2 million.Silver Corporation has E & P of $4 million.Debra's will names her daughter,Dena,who owns the remaining 10% interest in Silver Corporation,as her sole heir.With respect to this redemption,Debra's estate has the following income:

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The value of the Silver Corporation stock included in Debra's gross estate exceeds 35% of the adjusted gross estate ($2 million ÷ $5 million = 40%); thus,§ 303 treatment is available to the extent of the death taxes and funeral and administration expenses ($800,000).Because there is a step-up in basis in the stock under § 1014,there is no gain recognized on this portion of the redemption.The remaining $1.2 million of the redemption that is in excess of the § 303 limit does not qualify for sale or exchange treatment.Dena,the sole beneficiary of Debra's estate,owns 100% of the Silver stock outstanding after the redemption,and that ownership interest is attributed to the estate under § 318.As a result of this attribution,none of the § 302 qualifying stock redemption provisions are satisfied with respect to the excess redemption.Therefore,the estate has $1.2 million of dividend income.The estate's basis in the shares associated with the nonqualifying stock redemption ($1.2 million,with the § 1014 step-up)should attach to the basis of Dena's shares.

The Adjusted Gross Estate of Debra,decedent,is $5 Million