In the current year, Quail Corporation distributed installment notes payable in redemption of some of its shares. Quail incurred the following expenditures in connection with the redemption: accounting fees of $7,000 and legal fees of $8,000 . In addition, Quail paid $10,000 of interest expense on the installment notes payable. The distribution was a qualifying stock redemption. How much of the
$25,000 is deductible in the current year?
a. $0
b. $7,000
c. $10,000
d. $25,000
e. None of the above
c
RATIONALE: Section 162(k) disallows a deduction for expenditures incurred by a corporation in connection with the redemption of its shares. However, interest expense that is otherwise deductible under ยง 163 is not subject to this disallowance. Thus, Quail Corporation can deduct the $10,000 of interest expense on the debt incurred to finance the redemption.
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