The estate qualifies for Section 303 because the value of the closely held stock exceeds 35% of the
adjusted gross estate. The amount of the redemption eligible for Section 303 capital gain treatment is $125,000 ($45,000 admin expenses + $80,000 estate tax).
The calculation of the amount redeemable under Sec. 303 involves two steps. First, the estate must be
eligible for Sec. 303. The estate is eligible only if the value of the closely held stock exceeds 35% of the adjusted gross estate. In this question the estate qualifies since the value of the stock is over 42% ($300,000 divided by $700,000) of the adjusted gross estate. The second step involves determining the amount redeemable.
Since the nephew's bequest is liable for estate expenses and death taxes: Funeral and admin expenses $ 35,000
Federal estate taxes 70,000
Maximum Sec. 303 redemption $105,000
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