Battle Corporation redeems 20 percent of its stock for $100,000 in a stock redemption that is treated as an exchange by the shareholders. Battle's E&P at the date of the redemption is $200,000. Battle must reduce its E&P by $100,000 because of the redemption.

Question

Quizplus · Accepted Answer

Battle must reduce its E&P, but the reduction is not necessarily $100,000. The reduction in E&P due to a stock redemption treated as an exchange depends on the actual distribution amount in relation to the E&P, and specific tax rules, rather than automatically being the redemption amount.

Battle Corporation Redeems 20 Percent of Its Stock for $100,000