Red Corporation redeems all of its common and preferred stock. Red then exchanges this redeemed stock with Blue Corporation for 40% of Blue's voting common stock. The Blue stock is distributed to the Red shareholders. After the transaction, both Red and Blue corporations still exist. The former Red shareholders are now shareholders of Blue. This transaction qualifies as a(n):

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This transaction qualifies as a "Type B" reorganization under IRC Section 368(a)(1)(B) because it involves a complete redemption of all of Red Corporation's stock followed by an exchange of that stock for 40% of Blue Corporation's voting common stock. Both Red and Blue corporations still exist after the transaction and the former Red shareholders become shareholders of Blue. This is a tax-deferred transaction and no gain or loss is recognized by either Red or Blue Corporation or their shareholders.

Red Corporation Redeems All of Its Common and Preferred Stock