26 U.S.C. § 303 : US Code - Section 303: Distributions in redemption of stock to pay death taxes

Search 26 U.S.C. § 303 : US Code - Section 303: Distributions in redemption of stock to pay death taxes

(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 -
(1) the estate, inheritance, legacy, and succession taxes
(including any interest collected as a part of such taxes)
imposed because of such decedent's death, and
(2) the amount of funeral and administration expenses allowable
as deductions to the estate under section 2053 (or under section
2106 in the case of the estate of a decedent nonresident, not a
citizen of the United States),
shall be treated as a distribution in full payment in exchange for
the stock so redeemed.
(b) Limitations on application of subsection (a)
(1) Period for distribution
Subsection (a) shall apply only to amounts distributed after
the death of the decedent and -
(A) within the period of limitations provided in section
6501(a) for the assessment of the Federal estate tax
(determined without the application of any provision other than
section 6501(a)), or within 90 days after the expiration of
such period,
(B) if a petition for redetermination of a deficiency in such
estate tax has been filed with the Tax Court within the time
prescribed in section 6213, at any time before the expiration
of 60 days after the decision of the Tax Court becomes final,
or
(C) if an election has been made under section 6166 and if
the time prescribed by this subparagraph expires at a later
date than the time prescribed by subparagraph (B) of this
paragraph, within the time determined under section 6166 for
the payment of the installments.
(2) Relationship of stock to decedent's estate
(A) In general
Subsection (a) shall apply to a distribution by a corporation
only if the value (for Federal estate tax purposes) of all of
the stock of such corporation which is included in determining
the value of the decedent's gross estate exceeds 35 percent of
the excess of -
(i) the value of the gross estate of such decedent, over
(ii) the sum of the amounts allowable as a deduction under
section 2053 or 2054.
(B) Special rule for stock of two or more corporations
For purposes of subparagraph (A), stock of 2 or more
corporations, with respect to each of which there is included
in determining the value of the decedent's gross estate 20
percent or more in value of the outstanding stock, shall be
treated as the stock of a single corporation. For purposes of
the 20-percent requirement of the preceding sentence, stock
which, at the decedent's death, represents the surviving
spouse's interest in property held by the decedent and the
surviving spouse as community property or as joint tenants,
tenants by the entirety, or tenants in common shall be treated
as having been included in determining the value of the
decedent's gross estate.
(3) Relationship of shareholder to estate tax
Subsection (a) shall apply to a distribution by a corporation
only to the extent that the interest of the shareholder is
reduced directly (or through a binding obligation to contribute)
by any payment of an amount described in paragraph (1) or (2) of
subsection (a).
(4) Additional requirements for distributions made more than 4
years after decedent's death
In the case of amounts distributed more than 4 years after the
date of the decedent's death, subsection (a) shall apply to a
distribution by a corporation only to the extent of the lesser of
-
(A) the aggregate of the amounts referred to in paragraph (1)
or (2) of subsection (a) which remained unpaid immediately
before the distribution, or
(B) the aggregate of the amounts referred to in paragraph (1)
or (2) of subsection (a) which are paid during the 1-year
period beginning on the date of such distribution.
(c) Stock with substituted basis
If -
(1) a shareholder owns stock of a corporation (referred to in
this subsection as "new stock") the basis of which is determined
by reference to the basis of stock of a corporation (referred to
in this subsection as "old stock"),
(2) the old stock was included (for Federal estate tax
purposes) in determining the gross estate of a decedent, and
(3) subsection (a) would apply to a distribution of property to
such shareholder in redemption of the old stock,
then, subject to the limitation specified in subsection (b),
subsection (a) shall apply in respect of a distribution in
redemption of the new stock.
(d) Special rules for generation-skipping transfers
Where stock in a corporation is the subject of a generation-
skipping transfer (within the meaning of section 2611(a))
occurring at the same time as and as a result of the death of an
individual -
(1) the stock shall be deemed to be included in the gross
estate of such individual;
(2) taxes of the kind referred to in subsection (a)(1) which
are imposed because of the generation-skipping transfer shall be
treated as imposed because of such individual's death (and for
this purpose the tax imposed by section 2601 shall be treated as
an estate tax);
(3) the period of distribution shall be measured from the date
of the generation-skipping transfer; and
(4) the relationship of stock to the decedent's estate shall be
measured with reference solely to the amount of the generation-
skipping transfer.