"David Woods, EA, ChFC, CLU" <dwoods[at]woods-financial.com> wrote:

- quote -

The ownership percentage must be calculated after the redemption. Redeemed
stock is no longer voting stock it is not included in the calculation.
Therefore, the denominator when calculating percentage of ownership must be
reduced by the amount redeemed stock.

Ownership before redemption: 600 / 1000 = 60%

Ownership after redemption: (600-121) / 1000 = 47.9%
this appears to pass §302(b)(2) but is incorrect

Ownership after redemption: (600-121) /(1000-121) = 54.5%
this does not pass §302(b)(2)

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"Richard B. Gardner" <rbgea[at]cox.net> wrote:

- quote -

I'd stop grinning and start reviewing the code. Under §302(b)(2) there are
two mechanical tests. The first is that the total combined voting power
immediately after the redemption is LESS THAN 50%. The second is that the
shareholder must own LESS THAN 80% of the interest owned before the
redemption.

Before Redemption:
Total Shares: 1000
Brenda's Ownership: 600
Ownership Percentage: 60%
80% of Original Ownership: 48% <== must be less than this AND less than 50%
after redemption

After Redeeming 121 shares:
Total Shares: 879 (1000-121)
Brenda's Ownership: 479 (600-121)
Ownership Percentage: 54.4% *** (Fails under §302(b)(2) must be less than
48%) ***

After Redeeming 201 shares:
Total Shares: 799 (1000-201)
Brenda's Ownership: 399 (600-201)
Ownership Percentage: 49.9% *** (Fails under §302(b)(2) must be less than
48%) ***

After Redeeming 231 shares:
Total Shares: 769 (1000-231)
Brenda's Ownership: 369 (600-231)
Ownership Percentage: 47.9% *** Passes under §302(b)(2) ***

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"Bruce Steiner" <bsteiner[at]att.net> wrote:

- quote -

However, this analysis makes an assumption not indicated in the question,
i.e., that the stock owned by the shareholder is voting stock. Now, in
"real life" the shareholder would more than likely own voting stock. But,
for purposes of a homework assignment (if this is the case), it may be risky
to presume a fact that is not stated [g].

Richard B. Gardner, EA

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"LadyAccountant" <ladyaccountant01[at]hotmail.com> wrote:

- quote -

The minimum number of shares to qualify for a substantially
disproportionate redemption is 121. See IRC § 302(b)(2)...
you can work it out from there [grin].

Richard B. Gardner, EA

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Lady Accountant wrote:

- quote -

231. If 230 are redeemed, she'll have 370 of 770, or just
over 48%, which is more than 4/5 of the 60% she has now.
If 231 are redeemed, she'll have 369 or 769, or just under
48%, which is less than the 60% she has now.

But the moderator is correct that if 201 are redeemed, she
may still qualify for exchange treatment, but under Section
302(b)(1) (not essentially equivalent to a dividend), rather
than under Section 302(b)(2) (substantially
disproportionate). To qualify as substantially
disproportionate under Section 302(b)(2), her interest has
to be reduced both (i) to less than 4/5 of what it was
before, and (ii) to less than 50%.

Bruce Steiner, attorney
NYC
also admitted in NJ and FL

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"LadyAccountant" <ladyaccountant01[at]hotmail.com> wrote:

- quote -

I got 121 and as to showing the work, that's for PAYING clients.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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"LadyAccountant" <ladyaccountant01[at]hotmail.com> wrote:

- quote -

This sounds and looks like to me a homework problem.

Wayne Brasch, CPA, M. S. Taxation

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Brenda owns 600 shares of Eagle Corporation stock at a time
when Eagle has 1000 shares of stock outstanding. The
remaining shreholders are unrelated to Brenda. What is
the minimum number of shares Eagle must redeem from Brenda
so that the transaction will qualify as a disproportionate
redemption?
is it (a 121 shares; (b 231 shares; (c 301 shares; or (d 501 shares.
please show work

================================================== ====
Moderator: This is not a homework forum, But I got 201
================================================== ====

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