LO.1, 2 The gross estate of Tanya, decedent, includes stock of Finch Corporation

(E & P of $2 million) valued at $1.4 million. At the time of her death in 2012, Tanya owned 40% of the Finch stock outstanding, and she had a basis of $220,000 in the stock.

The death taxes and funeral and administration expenses related to Tanya’s estate amount to $1.4 million, and the adjusted gross estate is $7 million. The remainder of the Finch stock is owned by shareholders unrelated to Tanya (or her estate). Tanya named her son, Taylor, as the sole heir of her estate. In the current year, Finch Corporation distributes $1.4 million to the estate in redemption of all of its stock in the corporation.

What are the tax consequences of the redemption to Tanya’s estate and to Finch Corporation?