Oxen Corp. has 1,000 shares of common stock outstanding. Cherith owns 400 of these shares and...

Oxen Corp. has 1,000 shares of common stock outstanding. Cherith owns 400 of these shares and Marshall owns 600. Marshall’s total basis in his 600 shares is $40,000. Oxen has $500,000 of accumulated E&P as of the beginning of the year, and Oxen is profitable this year. Assume that Oxen redeems 210 shares of Marshall’s stock during the year for $80,000. Marshall seeks to determine if the redemption qualifies for sale treatment as a disproportionate redemption under Section 302(b)(2). Would Marshall pass the 50% test under Section 302(b)(2)? a. yes. b. no.

Expert Solution

Marshall passes the 50% test under Sec 302(b)(2) as he is holding 49.367% which is less than 50%.

But it is not a disproportionate redemption under sec 302(b)(2), because the first condition of holding less than than 80% of previous holding is not satisfied, which means that he is holding 49.367% after redemption of stock, which is more than 80% of previous holding ( i.e, 60*80% = 48%). So this condition has failed to satisfy and hence it is not a disproportionate redemption.

ekkarill92 answered 1 month ago

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