William Smith, Sr., was the founder of Smith Enterprises, Inc. He owns 60% of the stock of Smith Enterprises (60,000 shares of 100,000 shares outstanding, stock basis $100 per share). The value of the stock was recently determined to be about $500 per share. Over the years, William, Sr., has done a very good job of getting his sons and daughters (and even grandchildren) involved in the business, and the other 40% of the Smith Enterprises stock is owned by is two daughters, his son and his granddaughter. William, Sr., has reached the point in his life where he is ready to retire from the family business that he founded. He has done a sufficiently good job of training up the younger generation in the management of the business that he feels able to completely withdraw from the business.

In a few concise, coherent sentences, advise William, Sr., of what steps he needs to take to assure that the tax consequences of the redemption of all of his stock in Smith Enterprises will be treated as a sale of stock (long-term capital gain/loss), rather than as distribution (dividend income). If William, Sr., cannot understand your advise, he will fire you and you will lose a $600,000-per-year client, so make sure that your advise is both correct and coherently presented.