Which of the following statements is correct with respect to a partial liquidation?

Question

Quizplus · Accepted Answer

According to the not essentially equivalent to a dividend (NEED) test, a distribution to shareholders during a partial liquidation must not have the same effect as a regular dividend. The distribution of proceeds from the sale of excess inventory to shareholders in exchange for part of their stock may be treated as a dividend for tax purposes and may not satisfy the NEED test. The other statements are incorrect. The genuine contraction of a corporate business requirement is a subjective test that depends on the facts and circumstances of each case. A stock redemption pursuant to a partial liquidation can be pro rata or non-pro rata. The termination of a business test only requires that the corporation ceases to carry on its business activities, and there is no minimum requirement for the number of trades or businesses or the duration of their operation.

Which of the Following Statements Is Correct with Respect to a Partial