A stock redemption is always treated as if the shareholder sold his stock to the corporation.

Question

Quizplus · Accepted Answer

A stock redemption can be treated either as a sale or exchange transaction where capital gains tax applies, or as a dividend distribution depending on the circumstances and specific tax code provisions. The determination depends on factors such as the shareholder's ownership percentage before and after the redemption, and whether certain IRS tests are met.

A Stock Redemption Is Always Treated as If the Shareholder