D—Partial Stock Redemption

A partial stock redemption under Section 303 offers a very attractive way of paying estate settlement costs, particularly for a corporation that will be continued by the surviving family.

Under most circumstances, a stockholder who has the corporation redeem less than his entire stock interest will be fully taxed on the proceeds as ordinary income. However, under the special provisions of Section 303, his surviving family can do after death what the stockholder generally cannot do during his lifetime . . . namely, sell only a portion of his stock interest to the corporation, and have the sale treated as a capital transaction rather than as a dividend.