Tammy owns 60 percent of the stock of Huron Corporation. Unrelated individuals own the remaining 40 percent. For a stock redemption to be treated as an exchange under the "substantially disproportionate" rule, the redemption must reduce Tammy's stock ownership below 48 percent.
Tammy's stock ownership must be reduced below 50 percent and be less than 80 percent of her existing ownership (80% × 60% = 48%).

Question

Quizplus · Accepted Answer

The statement correctly defines the "substantially disproportionate" rule, which requires the shareholder's ownership to be reduced below 50 percent and less than 80 percent of their existing ownership. In Tammy's case, this means her ownership must be reduced below 48 percent to be treated as an exchange.

Tammy Owns 60 Percent of the Stock of Huron Corporation