At the time of his death on March 2, 2021, Horatio owned 60 percent of Lincoln Corporation, a closely held corporation. His two children, who were the sole beneficiaries of his will, owned the remaining 40 percent of Lincoln Corporation. Lincoln Corporation had $8,700,000 of accumulated earnings and profits as of 1/1/2021 and $300,000 of current earnings and profits for the year ending 12/31/2021. Horatio's interest in Lincoln was valued at $7,000,000 and his basis in his shares was equal to $1,750,000. Funeral and administration expenses totaled $600,000. Other unpaid obligations were equal to $3,000,000. The balance of Horatio's estate consisted of real property and publicly traded stock valued at $16,000,000. These assets and the Lincoln stock comprised the totality of Horatio's gross estate. Federal and state estate and inheritance taxes imposed on Horatio's estate were equal to $4,400,000.

1. If the corporation redeemed $5,000,000 of Lincoln stock, how would the redemption be characterized for federal income tax purposes? What would be the dividend income, if any, and/or the capital gain or loss as a result of the redemption of the $5,000,000 of Lincoln Corporation stock?

2. If the corporation redeemed all $7,000,000 of Lincoln stock, how would the redemption be characterized for federal income tax purposes? What would be the dividend income, if any, and/or the capital gain or loss as a result of the redemption of the $7,000,000 of Lincoln Corporation stock?