Free Up Funds for Estate Expenses with Section 303 Redemptions
Practical Tax Strategies
Generally, proceeds received by shareholders for a corporation's redemption of its own stock are dividends, taxed under the principles established by Section 301. Therefore, whether a corporation distributes cash or property, the distribution is not deductible by the corporation and is ordinary income to the shareholder to the extent of the corporation's earnings and profits. Sections 302(b) and 303 provide 5 important exceptions to the general rule. These exceptions allow the cash or other property received by the shareholder whose stock is being redeemed possibly to qualify as the proceeds from the sale or exchange of property.
Kozub, Robert M. and Trebby, James, "Free Up Funds for Estate Expenses with Section 303 Redemptions" (2002). Accounting Faculty Research and Publications. 49.