Thus, for tax purposes, the form of the transaction will be disregarded and the $75,000 payment to Shelly will be treated as a dividend distribution under Section 301.
Also, you have to deal with the attribution rules which basically means that ownership by blood line relatives is attributed to the stockholder; this rule prevents transferring of the stock to children by either the stockholder or the stockholder's estate, followed by a redemption to attempt to avoid dividend treatment.
Therefore, the only tax that would be due (in a small estte) would be any tax on any gain within the corp on any built up gains in selling its securities,. For example, let's say the shareholder had 1000 shares and the redemption was for 500 shares; well, after the redemption the shareholder would own 500 shares of the corporation, 1/2 of what he previously owned, but still 100% of the outstanding shares, so the redemption would be treated as a dividend to the extent of the retained earnings.
Qualified Stock Redemptions: Requirements for Treatment As A Sale of Stock Redemption Must Reduce Shareholder's Interest in the Corporation In order to be accorded sale treatment for tax purposes, the shareholder must be able to show that the payment received from the corporation was not "essentially equivalent to a dividend." Conceptually, the primary difference between a dividend (a return on capital) and a stock redemption (a return of capital) is that the latter reduces the shareholder's capital investment in the company, and thereby reduces her interest in the company's future operations.
The corp is to be liquidated in some fashion upon death, and then distributed to equally along with other assets, to mostly 4 children. How can you rate me as giving bad service when you didn't make yourself available to discuss your questions.