Hazel,Emily,and Frank,unrelated individuals,own all of the stock in Wren Corporation (E & P of $900,000)as follows: Hazel,100 shares; Emily,100 shares; and Frank,400 shares.Wren redeems 150 of Frank's shares (basis of $60,000)for $150,000.With respect to the distribution in redemption of the stock:

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The distribution does not satisfy any of the qualifying stock redemption provisions and,as such,is taxed as dividend income.Frank's ownership interest in Wren Corporation after the redemption is 55.6% (250 shares owned after redemption ÷ 450 shares outstanding after redemption).Since he continues to control Wren Corporation after the redemption,the transaction fails both the not essentially equivalent redemption provision and the disproportionate redemption provision.The $60,000 basis in the stock redeemed attaches to that of Frank's remaining stock in Wren.

Hazel,Emily,and Frank,unrelated Individuals,own All of the Stock in Wren Corporation