As a result of a redemption, a shareholder's interest (direct and indirect) in the corporation decreased from 80% to
55%. The redemption qualifies for sale or exchange treatment as a disproportionate redemption.

Question

Quizplus · Accepted Answer

For a redemption to qualify as disproportionate, the shareholder's interest must fall below 50% of the total combined voting power of all classes of stock entitled to vote or below 50% of the total number of shares of all other classes of stock after the redemption. In this case, decreasing from 80% to 55% does not meet this requirement.

As a Result of a Redemption, a Shareholder's Interest (Direct