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    Stock Redemption and Non-Liquidating Distributions

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    1. Describe the mechanics of a stock redemption.
    2. A stock redemption may be viewed either as a distribution or as a sale/exchange. From a tax perspective, which view is more advantageous for the shareholder and why?
    3. List the four circumstances when redemption is tax-advantaged.
    4. What is a stock dividend?
    5. What is the general tax effect of a complete liquidation of a corporation?
    6. What is the effect of a complete liquidation to stockholders under Section 331?

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    Solution Preview

    Question 1
    In a stock redemption, a stockholder surrenders a portion or all of his ownership interest in the corporation by exchanging such interest for corporate property. This means that the corporation buys the shares of the stockholder.

    Question 2
    In stock redemption, analysis of how the proceeds will be taxed is a little bit more complex. Proceeds can be taxed as dividend or ordinary income. According to Section 301 of the code, proceeds of stock redemption are taxed as ordinary income up to the amount of current and post 1913 E&P. Ordinary income are taxed at the individual's marginal tax ...

    Solution Summary

    This solution discusses questions regarding stock redemption and non-liquidating distributions.