Corporate Stock Redemption
If a decedent and their family own more than 50% of a corporation, there are some complex rules which might treat the redemption of stock as a dividend. Under Section 303 of the tax code, there is an exemption to the dividend treatment even if the deceased owned 100% of the stock. The amount paid to the heirs or estate of the decedent can be treated as a sale or exchange instead of dividend treatment.

To qualify for this favorable tax treatment, the deceased must have corporate stock making up 35% or more of their adjusted gross estate.

This special treatment is most suitable for families where a corporation represents a major asset of the family, and where the surviving shareholders want to continue to operate the business. In many cases, the redemption may be part of a buy/sell agreement between shareholders of a closely held corporation or a family owned corporation.


Special Use Valuation

Related Articles
  1. Investing

    Understanding Redemption

    In the investing world, redemption refers to cashing out the value of bonds or mutual funds.
  2. Taxes

    Corporate Inversion: How It Works

    Large corporations are making all kinds of moves to decrease expenses and increase profits in an increasingly competitive global market.
  3. Taxes

    Understanding How Dividends Are Taxed

    Learn how dividends are taxed by the IRS, and understand the different types of dividend income as well as the capital gains tax rates.
  4. Investing

    LLC Vs. Incorporation (Inc.): Which Should I Choose?

    Learn about the advantages of forming an LLC over a corporation, including ease of administration. Read about the advantages that a corporation may offer.
  5. Managing Wealth

    What is Capital Stock?

    Capital stock refers to the number of authorized shares a corporation may issue, both common and preferred.
  6. Small Business

    What is a Corporation?

    A corporation is an organization—usually a large business—with specific characteristics.
  7. Investing

    Due Diligence On Dividends

    Understanding dividends and how they work will help you become a more informed and successful investor.
  8. Taxes

    How Large Corporations Get Around Paying Taxes

    With the high tax rate of 35% imposed on large corporations in America, these companies still end up paying way below this rate.
  9. Taxes

    The Benefits Of Corporate Inversion

    Many U.S. companies have found it advantageous to relocate their headquarters rather than face the highest corporate tax rates in the world regardless of whether income was earned domestically ...
  10. Taxes

    Taxes in New York for Small Business: The Basics

    Learn how small businesses are taxed in New York, and understand how tax rates vary based on whether the business is an S corporation, LLC or partnership.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center