Chapter 3

Question 1

What is section 302(b)(2)

Answer 1

302(b)(2) is the mathematical test.

To qualify as a sale or exchange immediately after the redemption the share holder must own less than 50% of the combined voting power of the corporation. Must own less than 80% of the voting power than the share holder had before redemption. And must own less than 80% of the common stock than the share holder had prior to the redemption.

Question 2

What is section 302(b)(3)

Answer 2

(redemption shall be treated as a distribution) shall apply if the redemption is in complete redemption of all of the stock of the corporation owned by the shareholder.

Question 3

For Determining Termination Of Interest: What is Section 302(c)(2)(A)(i)

Answer 3

immediately after the distribution the distribute has no interest in the corporation (including an interest as officer, director, or employee), other than an interest as a creditor

Question 4

For Determining Termination Of Interest: What is Section 302(c)(2)(A)(ii)

Answer 4

The distribute does not acquire any such interest (other than stock acquired by bequest or inheritance) within 10 years from the date of such distribution, and

Question 5

What is section 304

Answer 5

Determines the redemption through use of a related party, tries to eliminate the use of loopholes.

Question 6

Why does determining the treatment matter. Distribution vs sale or exchange?

Answer 6

If treated as a distribution, you pay tax on the full amount you receive. If treated as a sale or exchange, you only pay tax on the amount of the amount realized over adjusted basis in the stock.