Financial Planner

Answer: C - Generally, there is no gift taxation unless the buyout agreement gives the purchaser an unqualified present purchase right at a contract price below fair market value. The selling owner sells a capital asset subject to capital gain treatment. However, there is usually no capital gain treatment because the buyer receives a stepped-up basis at fair market value. The selling party is taxed on the proceeds of the business as dividends, to the extent of the corporation’s earning, unless the corporation qualifies for IRC Sections 302 and 303.