Section 303 Stock Redemption

Section 303 redemption can be a tax efficient way of getting cash out of the business that otherwise would have been taxed as a dividend when distributed. The amount distributed is treated as payment for the redeemed stock. A distribution of property to a shareholder by a corporation in redemption of part or all of the stock of such corporation which for federal estate tax purposes is included in determining the gross estate of a decedent to the extent that the amount of such distribution does not exceed the sum of.

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Section 303 stock redemption. A is incorrect as there would be no estate tax liability due to the unlimited marital deduction. 303 a in general a distribution of property to a shareholder by a corporation in redemption of part or all of the stock of such corporation which for federal estate tax purposes is included in determining the gross estate of a decedent to the extent that the amount of such distribution does not exceed the sum of. The section 303 redemption is used primarily in cases where the decedent is a major stock holder in one or more corporations and the heirs wish to maintain control of the decedent s stock.

If stock were included in the decedent s gross estate and was worth at least 35 of the adjusted gross estate it can be redeemed under section 303 to pay for estate taxes and administrative expenses. The stock must be included in the decedent s gross estate but may be held by a surviving joint tenant as well as by the executor of the estate. Under the provisions of section 303 the surviving family can sell a portion of the decedent s stock to the corporation.

Remember there is no tracing requirement on funds received in a section 303 redemption. Planning ideas and similar topics are covered in great detail in many of cannon s professional. As with any complex business and estate plan talk with a qualified financial advisor.

Distributions in redemption of stock to pay death taxes. A section 303 stock redemption plan funded by life insurance is one very advantageous way to set up a series of events at the owner s death that will leave the surviving family members and the family business in secure financial shape. Under section 303 when a shareholder dies a partial stock redemption may be treated as a sale eligible for long term capital gains treatment when the redemption meets four tests.

Thus section 303 shall apply with respect to a distribution in redemption of stock received by the estate of a decedent 1 in connection with a reorganization under section 368 2 in a distribution or exchange under section 355 or so much of section 356 as relates to section 355 3 in an exchange under section 1036 or 4 in a distribution to which section 305 a applies. Section 303 stock redemptions redemption from a deceased stockholder will be treated as an exchange without dividend consequences even though the redemption would otherwise have been taxed as a dividend under 302. A in generala distribution of property to a shareholder by a corporation in redemption of part or all of the stock of such corporation which for federal estate tax purposes is included in determining the gross estate of a decedent to the extent that the amount of such distribution does not exceed the sum of 1.