Question

Sam owns 60 percent of the stock of Club Corporation. Unrelated individuals own the remaining 40 percent. For a stock redemption of Sam's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Club stock must Sam own after the redemption

Answer 1

Answer: c. Any percentage less than 48 percent.

Step-by-step explanation:

For a shareholder's distribution to be considered to be Substantially Disproportionate it needs to be the lesser of 2 criteria;

• 80% of their shares before the distribution
• 50% of the total shares

Sam owns 60% and 80% of that is;

= 80% * 60%

= 48%

Sam should own less than 48% after the redemption.