You are a senior tax manager at a large accounting firm located in Boston, Massachusetts. One of your clients, Carla Nevins (also a resident of Boston), calls you this morning for some tax advice. Carla has owned 100% of the common stock of Nevins Corporation (basis of $75,000) since the corporations formation in 2009. In 2016, when Nevins Corporation had E & P (earning & profits) of $320,000, the corporation distributed to Carla a nontaxable dividend of 500 shares of preferred stock (value of $100,000 on date of distribution) on her common stock interest (value of $400,000 on date of distribution). In 2018, Carla donated the 500 shares of preferred stock to her favorite qualified charity, State University. Carla deducted $100,000, the fair market value of the stock on the date of the gift, as a charitable contribution on her 2018 income tax return. Carlas adjusted gross income for 2018 was $420,000. Six months after the contribution, Nevins Corporation redeemed the preferred stock from State University for $100,000. Upon audit of Carlas 2018 return, the IRS disallowed the entire deduction for the gift to State University, asserting that the preferred stock was Section 306 stock and that a deduction for contributions of such stock was precluded under an internal revenue code section dealing with charitable contributions. Carla is not sure whether the IRS is correct.

Carla asks you to determine the proper tax treatment for her contribution of Nevins Corporation preferred stock, i.e., is the IRS correct? Research this issue for Carla and prepare a tax research memorandum detailing the results of your research.

Use One Internal Revenue Code Section (other than section 3060

cite two court cases