TAX FILE MEMORANDUM DATE: December 2, 2021 FROM: Astia Jackson: SUBJECT: Crane Corporation Today I advised the president of Crane Corporation regarding his November 25 letter. Crane Corporation had 2,000 shares of stock outstanding. It redeemed 500 shares for $370,000, when it had paid-in capital of $300,000 and E & P of $1,200,000. The redemption qualifies for sale or exchange treatment for the shareholder. Crane incurred $13,000 of accounting and legal fees with respect to the redemption transaction and $18,500 of interest expense on debt incurred to finance the redemption. At issue: What is the change in Crane Corporation's E&P as a result of the redemption? Also, are the redemption expenditures deductible by Crane? Conclusion: Under 312(n)(7), the E & P account of a corporation is by a qualifying stock redemption in an amount not in excess of the ratable share of the E & P of the distributing corporation attributable to the stock redeemed. Since Crane Corporation redeemed % of its stock, the change in E & P is $ a deduction for redemption expenditures." Code 162(k) specifically