Tim and his daughter, Mary, own and operate Tamar Corporation. Tim is near-ing retirement and would like to transfer ownership of the corporation to Mary but would like to stay on as a paid consultant providing retirement planning for the corporations other employees. Tamar redeems all of Tims common stock and gives him a contract to provide employee retirement counseling. The contract states that Tim is to be paid a flat $60,000 for his services. Tamar will provide an office in the plant where he can interact with employees who take advantage of his services. Prepare a memo to Tim and Mary outlining the likely tax outcomes associated with the redemption of Tims stock and subsequent contractual services.

This question has been posted before but I am looking for more specific references to internal revenue code sections that might be relevant for this scenario with some explanation please.