All of Sphere Corporation's single class of stock is owned by four unrelated individuals in the following manner: Zack 27%, Xu 24.33%, Yvonne 24.33%, and Win 24.33%. Some of Zack's stock holdings are redeemed by Sphere Corporation, resulting in Zack's interest being reduced to 22.27%. Xu, Yvonne, and Win owned equally the remaining 77.73% of the Sphere stock. How should the redemption of Zack's stock be treated by Zack?
A)dividend income
B)sale transaction
C)return of capital
D)some other treatment

Question

Quizplus · Accepted Answer

The redemption of Zack's stock should be treated as a sale transaction because his ownership percentage decreased significantly, indicating a meaningful reduction in his interest in the corporation.

All of Sphere Corporation's Single Class of Stock Is Owned