26 U.S.C. § 302: Distributions in redemption of stock

If a corporation redeems its stock (within the meaning of section 317(b)), and if paragraph (1), (2), (3), (4), or (5) of subsection (b) applies, such redemption shall be treated as a distribution in part or full payment in exchange for the stock. Subsection (a) shall apply if the redemption is not essentially equivalent to a dividend. Subsection (a) shall apply if the distribution is substantially disproportionate with respect to the shareholder. This paragraph shall not apply unless immediately after the redemption the shareholder owns less than 50 percent of the total combined voting power of all classes of stock entitled to vote. the ratio which the voting stock of the corporation owned by the shareholder immediately after the redemption bears to all of the voting stock of the corporation at such time, the ratio which the voting stock of the corporation owned by the shareholder immediately before the redemption bears to all of the voting stock of the corporation at such time. This paragraph shall not apply to any redemption made pursuant to a plan the purpose or effect of which is a series of redemptions resulting in a distribution which (in the aggregate) is not substantially disproportionate with respect to the shareholder. Subsection (a) shall apply if the redemption is in complete redemption of all of the stock of the corporation owned by the shareholder. in redemption of stock held by a shareholder who is not a corporation, and in partial liquidation of the distributing corporation. such redemption is upon the demand of the stockholder, and such company issues only stock which is redeemable upon the demand of the stockholder. In determining whether a redemption meets the requirements of paragraph (1), the fact that such redemption fails to meet the requirements of paragraph (2), (3), or (4) shall not be taken into account. If a redemption meets the requirements of paragraph (3) and also the requirements of paragraph (1), (2), or (4), then so much of subsection (c)(2) as would (but for this sentence) apply in respect of the acquisition of an interest in the corporation within the 10-year period beginning on the date of the distribution shall not apply. Except as provided in paragraph (2) of this subsection, section 318(a) shall apply in determining the ownership of stock for purposes of this section. immediately after the distribution the distributee has no interest in the corporation (including an interest as officer, director, or employee), other than an interest as a creditor, the distributee does not acquire any such interest (other than stock acquired by bequest or inheritance) within 10 years from the date of such distribution, and the distributee, at such time and in such manner as the Secretary by regulations prescribes, files an agreement to notify the Secretary of any acquisition described in clause (ii) and to retain such records as may be necessary for the application of this paragraph. any portion of the stock redeemed was acquired, directly or indirectly, within the 10-year period ending on the date of the distribution by the distributee from a person the ownership of whose stock would (at the time of distribution) be attributable to the distributee under section 318(a), or any person owns (at the time of the distribution) stock the ownership of which is attributable to the distributee under section 318(a) and such person acquired any stock in the corporation, directly or indirectly, from the distributee within the 10-year period ending on the date of the distribution, unless such stock so acquired from the distributee is redeemed in the same transaction. such entity and each related person meet the requirements of clauses (i), (ii), and (iii) of subparagraph (A), and each related person agrees to be jointly and severally liable for any deficiency (including interest and additions to tax) resulting from an acquisition described in clause (ii) of subparagraph (A). the term “entity” means a partnership, estate, trust, or corporation; and the term “related person” means any person to whom ownership of stock in the corporation is (at the time of the distribution) attributable under section 318(a)(1) if such stock is further attributable to the entity under section 318(a)(3). Except as otherwise provided in this subchapter, if a corporation redeems its stock (within the meaning of section 317(b)), and if subsection (a) of this section does not apply, such redemption shall be treated as a distribution of property to which section 301 applies. the distribution is not essentially equivalent to a dividend (determined at the corporate level rather than at the shareholder level), and the distribution is pursuant to a plan and occurs within the taxable year in which the plan is adopted or within the succeeding taxable year. The distribution is attributable to the distributing corporation’s ceasing to conduct, or consists of the assets of, a qualified trade or business. Immediately after the distribution, the distributing corporation is actively engaged in the conduct of a qualified trade or business. was actively conducted throughout the 5-year period ending on the date of the redemption, and was not acquired by the corporation within such period in a transaction in which gain or loss was recognized in whole or in part. Whether or not a redemption meets the requirements of subparagraphs (A) and (B) of paragraph (2) shall be determined without regard to whether or not the redemption is pro rata with respect to all of the shareholders of the corporation. For purposes of determining under subsection (b)(4) whether any stock is held by a shareholder who is not a corporation, any stock held by a partnership, estate, or trust shall be treated as if it were actually held proportionately by its partners or beneficiaries. Of stock to pay death taxes, see section 303. Of section 306 stock, see section 306. Of stock in complete liquidation, see section 331. The amendments made by this section [amending this section and sections 306, 312, 331, 334, 336, 341, 346, 543, and 562 of this title and repealing section 338 of this title ] shall apply to distributions after August 31, 1982 . on July 22, 1982 , there was a ruling request by such corporation pending with the Internal Revenue Service as to whether such distributions would qualify as a partial liquidation, or within the period beginning on July 12, 1981 , and ending on July 22, 1982 , the Internal Revenue Service granted a ruling to such corporation that the distributions would qualify as a partial liquidation, and such distributions are pursuant to a plan of partial liquidation adopted before October 1, 1982 (or, if later, 90 days after the date on which the Internal Revenue Service granted a ruling pursuant to the request described in clause (i)(I)). The amendments made by this section shall not apply to distributions made pursuant to a plan of partial liquidation adopted before July 23, 1982 . The amendments made by this section shall not apply to distributions made pursuant to a plan of partial liquidation adopted before October 1, 1982 , where control of the corporation making the distributions was acquired after December 31, 1981 , and before July 23, 1982 . such distributions are pursuant to a plan of liquidation adopted before October 1, 1982 , and control of such corporation was acquired after July 22, 1982 , pursuant to a tender offer or binding contract outstanding on such date. If the acquisition described in clause (i)(II) is subject to approval by a Federal regulatory agency, clause (i) shall be applied by substituting for ‘ October 1, 1982 ’ the date which is 90 days after the date on which approval by the Federal regulatory agency of such acquisition becomes final. such public announcement shall be treated as a tender offer, and clause (i) shall be applied by substituting for ‘ October 1, 1982 ’ the date which is 90 days after the date on which such regulatory body approves a public offer to acquire stock in such corporation. one-third or more of the shares of a corporation were acquired by another corporation during March and April 1982, and during March or April 1982, the acquiring corporation filed with the Federal Trade Commission notification of its intent to acquire control of the acquired corporation, The amendments made by this section shall not apply to distributions made by an insurance company pursuant to a plan of partial liquidation adopted before October 1, 1982 , where control was acquired by the distributee or its parent after December 31, 1980 , and before July 23, 1982 , and the conduct of the insurance business by the distributee is conditioned on approval by a State regulatory authority. paragraph (2), and applying section 346(a)(2) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of this Act) [ Sept. 3, 1982 ] to distributions to which (but for paragraph (2)) the amendments made by this section would apply, For purposes of section 338(e)(2)(C) of the Internal Revenue Code of 1986 (as added by section 224), any property acquired in a distribution to which the amendments made by this section do not apply by reason of paragraph (2) shall be treated as acquired before September 1, 1982 .”