86
INTERNAL REVENUE CODE OF 1954 (b) REDEMPTIONS TREATED AS EXCHANGES.— (1) REDEMPTIONS NOT EQUIVALENT TO DIVIDENDS.—Subsection
(a) shall apply if the redemption is not essentially equivalent to a dividend. (2) SUBSTANTIALLY DISPROPORTIONATE REDEMPTION OF STOCK.—
(A) IN GENERAL.—Subsection ^a) shall apply if the distribution is substantially disproportionate with respect to the shareholder. (B) LIMITATION.—This paragraph shall not apply unless immediately after the redemption the shareholder owns less than 50 percent of the total combined voting power of all classes of stock entitled to vote. (C) DEFINITIONS.—For purposes of this paragraph, the distribution is substantially disproportionate if— (i) the ratio which the voting stock of the corporation owned by the shareholder immediately after the redemption bears to all of the voting stock of the corporation at such time, is less than 80 percent of— (ii) the ratio which the voting stock of the corporation owned by the shareholder immediately before the redemption bears to all of the voting stock of the corporation at such time. For purposes of this paragraph, no distribution shall be treated as substantially disproportionate unless the shareholder's ownership of the common stock of the corporation (whether voting or nonvoting) after and before redemption also meets the 80 percent requirement of the preceding sentence. For purposes of the preceding sentence, if there is more than one class of common stock, the determinations shall be made by reference to fair market value. (D) SERIES OF REDEMPTIONS.—This paragraph shall not apply to any redemption made pursuant to a plan the purpose or effect of which is a series of redemptions resulting in a distribution which (in the aggregate) is not substantially disproportionate with respect to the shareholder. (3) TERMINATION OF SHAREHOLDER'S INTEREST.—Subsection (a)
shall apply if the redemption is in complete redemption of all of the stock of the corporation owned by the shareholder. (4) STOCK
ISSUED
BY RAILROAD
CORPORATIONS
IN
CERTAIN
REORGANIZATIONS.—Subsection (a) shall apply if the redemption is of stock issued by a railroad corporation (as defined in section 77 (m) of the Bankruptcy Act, as amended) pursuant to a plan of reorganization under section 77 of the Bankruptcy Act. (5) APPLICATION OF PARAGRAPHS.—In determining whether a
redemption meets the requirements of paragraph (1), the fact that such redemption faUs to meet the requirements of paragraph (2), (3), or (4) shall not be taken into account. If a redemption meets the requirements of paragraph (3) and also the requirements of paragraph (1), (2), or (4), then so much of subsection (c)(2) as would (but for this sentence) apply in respect of the acquisition of an interest in the corporation within the 10-year period beginning on the date of the distribution shall not apply. (c) CONSTRUCTIVE OWNERSHIP OF STOCK.—
302(b)
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