Steven is a 25% shareholder of ABC, Inc. (25,000 shares owned of 100,000 shares outstanding, long-term holding period). His stock basis is $150 per share, and the market value of ABC stock is $400 per share. Steven is not related to any of the other shareholders of ABC. Steven wants to raise some cash from the disposition of some of his stock. For each of the following independent stock dispositions, select the answer that most correctly describes Steven's tax consequences. ABC has a very large balance in E&P.

1) Steven will sell 5,000 shares of ABC stock to an unrelated party for $400 per share.

2) Steven will redeem 5,000 shares of his ABC stock in exchange for a redemption distribution of $400 per share.

3) Steven will redeem 7,000 shares of his ABC stock in exchange for a redemption distribution of $400 per share.

4) Steven will redeem 7,000 shares of his ABC stock in exchange for a redemption distribution of $400 per share. However, another shareholder has previously announced her intention to retire to an island paradise. Accordingly, in a couple of months, she redeemed her entire stock holding of 15,000 shares.