Question

In 2011, Floyd carried out a successful complete termination redemption of his stock in Gray Corporation....

In 2011, Floyd carried out a successful complete termination redemption of his stock in Gray Corporation. In 2019, Floyd inherits stock in Gray Corporation from his father. Floyd has not violated the 10-year rule for complete termination redemptions.
a.   True.
b.   False.

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Answer #1

False, Floyd had violated the rule. The rule actually states that, the redemption will be classified as complete termination redemption and the family attribution will not take effect if Floyd has no interest in the company for atleast 10 years from the date of termination.

Here in the given case Floyd has interest in the company within 10 years and as a result family attribution rules will come into effect at the time of first redemption of stock by Floyd. Therefore the complete redemption rules cannot be applied and the proceeds will be taxed as dividend income I the hands of Floyd.

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