Sara owns 60 percent of the stock of Lea Corporation. Unrelated individuals own theremaining 40 percent. For a stock redemption of Sara's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Lea stock must Sara own after the redemption?

Question

Quizplus · Accepted Answer

For a redemption to be "substantially disproportionate," the shareholder must own less than 80% of their prior percentage. Since Sara owns 60%, she must own less than 48% after the redemption (60% * 80% = 48%).

Sara Owns 60 Percent of the Stock of Lea Corporation