K—Section 303 and the Unlimited Marital Deduction

Under Section 303 of the Internal Revenue Code, the partial redemption, or sale, of stock may be made between the corporation and only that party having liability for the federal and state
death taxes, funeral, and administrative expenses. Because of this restriction, the utility of a Section 303 redemption to a surviving spouse is limited since no federal estate taxes will be paid if the marital deduction is fully used. For this reason, there may be some advantage to incurring a federal estate tax by passing more than the unified credit equivalent in stock to a surviving child, trust, or beneficiary other than the surviving spouse. With the estate tax exemption currently at $13.99 million (in 2025) as a result of the temporary doubling provided by
the 2017 Tax Act, passing property to children and grandchildren (rather than a surviving spouse) can be done more easily without estate tax ramifications. This could allow full advantage
to be taken of a redemption under Section 303, but would also avoid subsequent appreciation of the stock in the surviving spouse’s estate. For an explanation of the unlimited marital
deduction.