---
kind: "section"
citation: "26 U.S.C. § 303"
title: "26"
title_heading: "Internal Revenue Code"
number: "303"
heading: "Distributions in redemption of stock to pay death taxes"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/303"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter C — Corporate Distributions and Adjustments"
  - "Part I — Distributions by Corporations"
  - "Subpart A — Effects on Recipients"
---

# §303. Distributions in redemption of stock to pay death taxes

- (a) **In general—** A [distribution of property](/usc/26/316.md?p=b-2-B) to a shareholder by a corporation in redemption of part or all of the [stock](/usc/26/1504.md?p=a-4) of such corporation which (for Federal [estate](/usc/26/1361.md?p=c-3) tax purposes) is included in determining the gross [estate](/usc/26/1361.md?p=c-3) of a decedent, to the extent that the amount of such distribution does not exceed the sum of—
  - (1) the [estate](/usc/26/1361.md?p=c-3), inheritance, legacy, and succession taxes (including any [interest](/usc/26/856.md?p=f-1) collected as a part of such taxes) imposed because of such decedent’s death, and
  - (2) the amount of funeral and administration expenses allowable as deductions to the [estate](/usc/26/1361.md?p=c-3) under [section 2053](/usc/26/2053.md) (or under [section 2106](/usc/26/2106.md) in the case of the [estate](/usc/26/1361.md?p=c-3) of a decedent nonresident, not a citizen of the [United States](/usc/26/993.md?p=g)),

  shall be treated as a distribution in full payment in exchange for the [stock](/usc/26/1504.md?p=a-4) so redeemed.

- (b) **Limitations on application of subsection (a)—**
  - (1) **Period for distribution—** [Subsection (a)](#a) shall apply only to amounts distributed after the death of the decedent and—
    - (A) within the period of limitations provided in [section 6501(a)](/usc/26/6501.md?p=a) for the assessment of the Federal [estate](/usc/26/1361.md?p=c-3) tax (determined without the application of any provision other than [section 6501(a)](/usc/26/6501.md?p=a)), or within 90 days after the expiration of such period,
    - (B) if a petition for redetermination of a deficiency in such [estate](/usc/26/1361.md?p=c-3) tax has been filed with the Tax Court within the time prescribed in [section 6213](/usc/26/6213.md), at any time before the expiration of 60 days after the decision of the Tax Court becomes final, or
    - (C) if an election has been made under [section 6166](/usc/26/6166.md) and if the time prescribed by this subparagraph expires at a later date than the time prescribed by subparagraph (B) of this paragraph, within the time determined under [section 6166](/usc/26/6166.md) for the payment of the installments.
  - (2) **Relationship of stock to decedent’s estate—**
    - (A) **In general—** [Subsection (a)](#a) shall apply to a distribution by a corporation only if the [value](/usc/26/851.md?p=c-4) (for Federal [estate](/usc/26/1361.md?p=c-3) tax purposes) of all of the [stock](/usc/26/1504.md?p=a-4) of such corporation which is included in determining the [value](/usc/26/851.md?p=c-4) of the decedent’s gross [estate](/usc/26/1361.md?p=c-3) exceeds 35 percent of the excess of—
      - (i) the [value](/usc/26/851.md?p=c-4) of the gross [estate](/usc/26/1361.md?p=c-3) of such decedent, over
      - (ii) the sum of the amounts allowable as a deduction under section [2053](/usc/26/2053.md) or 2054.
    - (B) **Special rule for stock of two or more corporations—** For purposes of [subparagraph (A)](#b-2-A), [stock](/usc/26/1504.md?p=a-4) of 2 or more corporations, with respect to each of which there is included in determining the [value](/usc/26/851.md?p=c-4) of the decedent’s gross [estate](/usc/26/1361.md?p=c-3) 20 percent or more in [value](/usc/26/851.md?p=c-4) of the outstanding [stock](/usc/26/1504.md?p=a-4), shall be treated as the [stock](/usc/26/1504.md?p=a-4) of a single corporation. For purposes of the 20-percent requirement of the preceding sentence, [stock](/usc/26/1504.md?p=a-4) which, at the decedent’s death, represents the [surviving spouse](/usc/26/2.md?p=a-1)’s [interest](/usc/26/856.md?p=f-1) in [property](/usc/26/317.md?p=a) held by the decedent and the [surviving spouse](/usc/26/2.md?p=a-1) as community [property](/usc/26/317.md?p=a) or as joint tenants, tenants by the entirety, or tenants in common shall be treated as having been included in determining the [value](/usc/26/851.md?p=c-4) of the decedent’s gross [estate](/usc/26/1361.md?p=c-3).
  - (3) **Relationship of shareholder to estate tax—** [Subsection (a)](#a) shall apply to a distribution by a corporation only to the extent that the [interest](/usc/26/856.md?p=f-1) of the shareholder is reduced directly (or through a binding obligation to contribute) by any payment of an amount described in paragraph [(1)](#a-1) or [(2)](#a-2) of subsection (a).
  - (4) **Additional requirements for distributions made more than 4 years after decedent’s death—** In the case of amounts distributed more than 4 years after the date of the decedent’s death, [subsection (a)](#a) shall apply to a distribution by a corporation only to the extent of the lesser of—
    - (A) the aggregate of the amounts referred to in paragraph [(1)](#a-1) or [(2)](#a-2) of subsection (a) which remained unpaid immediately before the distribution, or
    - (B) the aggregate of the amounts referred to in paragraph [(1)](#a-1) or [(2)](#a-2) of subsection (a) which are paid during the 1-year period beginning on the date of such distribution.
- (c) **Stock with substituted basis—** If—
  - (1) a shareholder owns [stock](/usc/26/1504.md?p=a-4) of a corporation (referred to in this subsection as “new [stock](/usc/26/1504.md?p=a-4)”) the basis of which is determined by reference to the basis of [stock](/usc/26/1504.md?p=a-4) of a corporation (referred to in this subsection as “old [stock](/usc/26/1504.md?p=a-4)”),
  - (2) the old [stock](/usc/26/1504.md?p=a-4) was included (for Federal [estate](/usc/26/1361.md?p=c-3) tax purposes) in determining the gross [estate](/usc/26/1361.md?p=c-3) of a decedent, and
  - (3) [subsection (a)](#a) would apply to a [distribution of property](/usc/26/316.md?p=b-2-B) to such shareholder in redemption of the old [stock](/usc/26/1504.md?p=a-4),

  then, subject to the limitation specified in [subsection (b)](#b), [subsection (a)](#a) shall apply in respect of a distribution in redemption of the new [stock](/usc/26/1504.md?p=a-4).

- (d) **Special rules for generation-skipping transfers—** Where [stock](/usc/26/1504.md?p=a-4) in a corporation is the subject of a generation-skipping transfer (within the meaning of [section 2611(a)](/usc/26/2611.md?p=a)) occurring at the same time as and as a result of the death of an individual—
  - (1) the [stock](/usc/26/1504.md?p=a-4) shall be deemed to be included in the gross [estate](/usc/26/1361.md?p=c-3) of such individual;
  - (2) taxes of the kind referred to in [subsection (a)(1)](#a-1) which are imposed because of the generation-skipping transfer shall be treated as imposed because of such individual’s death (and for this purpose the tax imposed by [section 2601](/usc/26/2601.md) shall be treated as an [estate](/usc/26/1361.md?p=c-3) tax);
  - (3) the period of distribution shall be measured from the date of the generation-skipping transfer; and
  - (4) the relationship of [stock](/usc/26/1504.md?p=a-4) to the decedent’s [estate](/usc/26/1361.md?p=c-3) shall be measured with reference solely to the amount of the generation-skipping transfer.

## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 88; Pub. L. 94–455, title XX, §§ 2004(e), 2006(b)(4), Oct. 4, 1976, 90 Stat. 1871, 1889; Pub. L. 97–34, title IV, § 422(b), (e)(1), Aug. 13, 1981, 95 Stat. 314, 316; Pub. L. 99–514, title XIV, § 1432(b), Oct. 22, 1986, 100 Stat. 2730.)

## Notes

### Editorial Notes

### Amendments

1986—Subsec. (d). Pub. L. 99–514 amended subsec. (d) generally. Prior to amendment, subsec. (d) read as follows: “Under regulations prescribed by the Secretary, where stock in a corporation is subject to tax under section 2601 as a result of a generation-skipping transfer (within the meaning of section 2611(a)), which occurs at or after the death of the deemed transferor (within the meaning of section 2612)—

“(1) the stock shall be deemed to be included in the gross estate of the deemed transferor;

“(2) taxes of the kind referred to in subsection (a)(1) which are imposed because of the generation-skipping transfer shall be treated as imposed because of the deemed transferor’s death (and for this purpose the tax imposed by section 2601 shall be treated as an estate tax);

“(3) the period of distribution shall be measured from the date of the generation-skipping transfer; and

“(4) the relationship of stock to the decedent’s estate shall be measured with reference solely to the amount of the generation-skipping transfer.”

1981—Subsec. (b)(1)(C). Pub. L. 97–34, § 422(e)(1), struck out “or 6166A” after “section 6166” in two places.

Subsec. (b)(2)(A). Pub. L. 97–34, § 422(b)(1), substituted “35” for “50” before percent.

Subsec. (b)(2)(B). Pub. L. 97–34, § 422(b)(2), in heading, substituted “stock in 2” for “stock of two”, in first sentence, struck out “the 50 percent requirement” before “of subparagraph (A)” and substituted “2” for “two” and “20 percent or more in value” for “more than 75 percent in value”, and, in last sentence, substituted “For purposes of the 20-percent requirement” for “For the purpose of the 75 percent requirement” and, in determining value of decedent’s gross estate, treated the estate as including stock which at decedent’s death represented surviving spouse’s interest in property held by the decedent and surviving spouse either as joint tenants, tenants by the entirety, or tenants in common.

1976—Subsec. (b)(1)(C). Pub. L. 94–455, § 2004(e)(1), added subpar. (C).

Subsec. (b)(2)(A). Pub. L. 94–455, § 2004(e)(2)(A), substituted provisions limiting the applicability of subsec. (a) to corporate distributions in which the value of the corporate stock included in decedent’s gross estate exceeds 50 percent of the gross estate over deductions allowed under sections 2053 and 2054 for provisions limiting the applicability of subsec. (a) to corporate distributions in which the value of the corporate stock included in decedent’s gross estate is either more than 35 percent of the gross estate or 50 percent of the taxable estate.

Subsec. (b)(2)(B). Pub. L. 94–455, § 2004(e)(2)(B), substituted “the 50 percent requirement” for “the 35 percent and 50 percent requirements”.

Subsec. (b)(3), (4). Pub. L. 94–455, § 2004(e)(3), added pars. (3) and (4).

Subsec. (c). Pub. L. 94–455, § 2004(e)(4), substituted “limitation specified in subsection (b)” for “limitation specified in subsection (b)(1)”.

Subsec. (d). Pub. L. 94–455, § 2006(b)(4), added subsec. (d).

### Statutory Notes and Related Subsidiaries

### Effective Date of 1986 Amendment

Amendment by Pub. L. 99–514 applicable to generation-skipping transfers (within the meaning of section 2611 of this title) made after Oct. 22, 1986, except as otherwise provided, see section 1433 of Pub. L. 99–514, set out as an Effective Date note under section 2601 of this title.

### Effective Date of 1981 Amendment

Amendment by Pub. L. 97–34 applicable to estates of decedents dying after Dec. 31, 1981, see section 422(f) of Pub. L. 97–34, set out as a note under section 6166 of this title.

### Effective Date of 1976 Amendment

Amendment by section 2004(e)(1)–(4) of Pub. L. 94–455 applicable to estates of decedents dying after Dec. 31, 1976, see section 2004(g) of Pub. L. 94–455, set out as an Effective Date note under section 6166 of this title.

For effective date of amendment by section 2006(b)(4) of Pub. L. 94–455, see section 2006(c) of Pub. L. 94–455, set out as an Effective Date note under section 2601 of this title.