Definitions Match the following terms with the appropriate definition. Click on

Question

Definitions Match the following terms with the appropriate definition. Click on the term in the left column first and then on the correct definition in the right column. Clear Al Under certan crcumstances, these tax rules alow for assignment to one taxpayer the ownership nterest of another taxpayer Disproportionate redemption Sale or exchange treatment is avaiable relative to this type of stock redemption. The shareholder must retire Complete termination redemption al of his or her outstanding shares in the corporation (ignoring family attrbution rules) and cannot hold an interest, other than that of a credtor, for the 10 years folowing the redemption. Sale or exchange treatment is avalable relative to this type of stock redemption. After the exchange, the shareholder owns less than 80 percent of his or her pre-redemption interest in the corporation and only a minority interest in the entty Attribution

Explanation / Answer

Disproportionate redemption (c) Under this type of redemption the shareholder must own less than 80% of the interest owned in the corporation before the redemption.For example, if a shareholder owns a 50% interest in a corporation that redeems part of the stock, the redemption is substantially disproportionate only if the shareholder’s ownership interest after the redemption is less than (80% x 50%) = 40%. Complete Termination redemption (b) A stock redemption that terminates a shareholder’s entire stock ownership in a corporation will qualify for sale or exchange. Attribution (a) When corporation redeems stock the amount received by the shareholder is treated for tax purposes as either a dividend or sale.Dividend income is fully taxed and when it is treated as sale than partial is tax free depends upon stock basis.

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