Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200. D owns 40 shares of Z common stock with a basis of $60 per share. The stocks fair market value is $40 per share. Zs E&P is $1,000. D sells 10 shares back to Z for $400. The following statements are with regard to D.

a.
The redemption will be treated as a dividend.

b.
The redemption will be treated as a sale under 302(b)(2), substantially disproportionate disposition.

c.
It is impossible to tell how the redemption will be treated.

d.
The redemption will likely be treated as a sale under 302(b)(1), not essentially equivalent to a dividend.

e.
None of the above.

Question

Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200. D owns 40 shares of Z common stock with a basis of $60 per share. The stocks fair market value is $40 per share. Zs E&P is $1,000. D sells 10 shares back to Z for $400. The following statements are with regard to D.

	a.	The redemption will be treated as a dividend.
	b.	The redemption will be treated as a sale under 302(b)(2), substantially disproportionate disposition.
	c.	It is impossible to tell how the redemption will be treated.
	d.	The redemption will likely be treated as a sale under 302(b)(1), not essentially equivalent to a dividend.
	e.	None of the above.

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Question

Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for $1,200.

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