Sam’s gross estate includes stock in Tern Corporation and Wren Corporation, valu

Question

Sam’s gross estate includes stock in Tern Corporation and Wren Corporation, valued at $1.4 million and $980,000, respectively. At the time of Sam’s death, the stock represented 22% of Tern’s outstanding stock and 27% of Wren’s outstanding stock. Sam’s adjusted gross estate equals $6,500,000. Death taxes and funeral and administration expenses for Sam’s estate total $980,000. Sam had a basis of $350,000 in the Tern stock and $190,000 in the Wren stock at the time of his death. None of the beneficiaries of Sam’s estate own (directly or indirectly) any stock in Tern Corporation, but some of the beneficiaries own stock of Wren Corporation. Consider the following independent questions. a. What are the tax consequences to the estate if all of its Wren stock is redeemed by Wren Corporation for $980,000? b. What are the tax consequences to the estate if all of its Tern stock is redeemed by Tern Corporation for $1.4 million?

Explanation / Answer

a) According to the 26 U.S. Code § 303 - Distributions in redemption of stock by a corporation after stock holder death it is treated as a distribution made by full amount in exchange of stock made by a corporation

Checking Sam’s gross estate should exceed 35%= $1,400,000+$980,000 / $6,500,000*100=36.61%

Wren stock is redeemed by Wren Corporation for exchange is $980,000 at the time of death Sam stock valued at $190,000 as basis. sam stock valued at $190,000 as stock basis for estate and inheritance.

stock is not sold out it is exchanged so there is not tax

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b)

Death taxes and funeral and administration expenses for Sam’s estate total $980,000 is allowed for deductible under section 2053, because None of the beneficiaries claim Sam’s estate, so Tern Corporation can exchanged it stock for amount $1,400,000. Death date of the sam stock valued at $350,000 as stock basis,

$1,400,000 -$350,000=$1,050,000-$980,000=$70,000 cash will be available. No tax will be available for gain because it was exchanged.

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