1. Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

A) The shareholder must own less than 50% of the outstanding stock (in terms of voting power) after the redemption.

B) After the redemption, the shareholder must own less than 80% of his percentage ownership of voting stock prior to the redemption.

C) After the redemption, the shareholder must own less than 80% of his percentage ownership of common stock (voting and nonvoting) prior to the redemption.

D) All of the above must be met.

2.

Smith owns 750 shares of the total outstanding stock of 1,000 shares for Blue Company.

Her stock basis is $50,000. Smith, subsequently, sells 200 of her shares back to Blue Company for $20,000. Blue Company has E & P of $80,000. Smiths sale of her stock to

Blue Corporation will be treated as:

A) dividend income

B) a sale transaction

C) a return of capital

D) some other treatment