In general,a nonqualified stock redemption is denied sale or exchange treatment because the shareholder's ownership interest in the corporation is not sufficiently diminished as result of the redemption.

Question

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Nonqualified stock redemptions are typically not treated as a sale or exchange under tax law because the shareholder's ownership interest in the corporation is not significantly reduced as a result of the redemption. As a result, the shareholder is often treated as receiving a dividend distribution instead of a capital gain or loss.

In General,a Nonqualified Stock Redemption Is Denied Sale or Exchange