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.

Question

Quizplus · Accepted Answer

According to the "substantially disproportionate" rule, a stock redemption must result in the shareholder's ownership percentage being reduced by at least 80% for it to be treated as an exchange. In this case, Tammy owns 60% of the stock, so the redemption must reduce her ownership below 12% (which is 80% less than 60%). However, the statement says that the redemption must reduce her ownership below 48%, which is incorrect.

Tammy Owns 60 Percent of the Stock of Huron Corporation