B is corrent. The requirement is to determine how the gain resulting from a stock redemption should be treated by a noncorporate shareholder if the redemption qualifies as a partial liquidation of the distributing corporation. A corporate stock redemption is treated as an exchange, generally resulting in capital gain or loss treatment to a shareholder if the redemption meets any one of five tests. Redemptions qualifying for exchange treatment include (1) a redemption that is not essentially equivalent to a dividend, (2) a redemption that is substantially disproportionate, (3) a redemption that completely terminates a shareholder’s interest, (4) a redemption of a noncorporate shareholder in a partial liquidation, and (5) a redemption to pay death taxes. If none of the above five tests are met, the redemption proceeds are generally treated as a dividend.
A is incorrect. The redemption is treated as an exchange.
A is incorrect. The redemption is treated as an exchange.
D is incorrect. The redemption is treated as an exchange.
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