The gross estate of John, decedent, includes stock in Crimson Corporation and Jade Corporation valued at $1.3 million and $2 million, respectively. John's adjusted gross estate is $9 million. He owned 23% of the Crimson stock and 31% of the Jade stock. Immediate members of John's family own the remaining shares of both Crimson and Jade. Those individuals are also the sole beneficiaries of John's estate. Death taxes and funeral and administration expenses for John's estate are $1.3 million. John had a basis of $475,000 in the Crimson stock and $510,000 in the Jade stock. Crimson Corporation (E & P of $3 million) distributed land worth $1.3 million (basis of $800,000) to John's estate in redemption of all of the Crimson stock. Which of the following is a correct statement regarding the tax consequences of this redemption?

Question

Quizplus · Accepted Answer

Since the land was distributed in redemption of all the Crimson stock, the estate has disposed of its entire interest in the Crimson stock. Therefore, the transaction is treated as a complete redemption of the stock, and the estate recognizes no gain or loss on the redemption. The basis of the land received by the estate is equal to the basis of the Crimson stock redeemed, which is $475,000. The distribution is not a dividend because it is in redemption of stock, and because the estate recognizes no gain, Crimson Corporation also recognizes no gain on the distribution of the land.

The Gross Estate of John, Decedent, Includes Stock in Crimson