Select the best answer. U died thls year. Hls sole asset was 80 shares of D Corp

Question

Select the best answer. U died thls year. Hls sole asset was 80 shares of D Corp. stock, which were worth $800,000 (basls $200 per share). The remalning 20 shares of the stock were owned by J's son. In J's will, he provided that all of the stock go to his son. Estate taxes were $123,000, and funeral and adminlstratlve expenses were $27,000. In order to pay the death taxes, the corporation redeemed 20 shares of stock from J's estate for $200,000. Assuming that the corporation has substantial E&P, what will the estate report? O A. $50,000 dividend O B. $150,000 capital gain and $50,000 dividend O C. $196,000 capital gain O D. No gain or loss or other income from the redemption distribution Gateway

Explanation / Answer

Solution- option A $50,000 dividend is correct

Maximum qualified amount= Estate taxes + funeral and administrative expenses

Maximum qualified amount = $1,23,000+$27,000=$1,50,000

$1,50,000 paid which is equal to the fair value of 15 shares transferred ( 8,00,000/80*15= $1,50,000). Hence no profit or loss on exchange of that portion. Balance $50,000 is dividend income.

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