Sam owns 70 percent of the stock of Club Corporation. Unrelated individuals own theremaining 30 percent. For a stock redemption of Sam's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Club stock must Sam own after the redemption?

Question

Quizplus · Accepted Answer

The "substantially disproportionate" test requires that the shareholder's percentage ownership of the corporation's stock after the redemption be less than 80% of the shareholder's percentage ownership of the corporation's stock before the redemption. In this case, Sam owns 70% of the stock before the redemption, so after the redemption, he must own less than 80% of 70%, which is 56%.

Sam Owns 70 Percent of the Stock of Club Corporation