David has died and his estate now owns $2,500,000 worth

David has died and his estate now owns $2,500,000 worth of XX Corp stock. The total estate is $6 million. The estate needs $475,000 to cover inheritance taxes, and funeral and estate administration costs. It redeems stock in XX for $500,000 in a redemption that does not qualify under any of the “302(b)” tests. Show the calculations you use to determine how much dividend income David’s estate will have? 

1. A corporation liquidates, distributing $40,000 in cash to its only shareholder (Ellen) and a machine in which its basis was $10,000, value $12,000. Ellen’s basis in her stock was $34,000. 

(a) How much gain or loss does Ellen recognize? 

(b) How much gain or loss does the corporation recognize? 

(c) What’s Ellen’s basis in the machine?