The two issues, wrote the court, "are not ineluctably linked." In fact, it decided that the transactions were entirely separate; even though, under the ESOP, a convertible preferred stock redemption
was required when a person left the company, a distribution did not automatically follow.
If a shareholder sells all his or her stock and completely terminates ownership of the corporation, the redemption
is treated as an exchange.
Corporate distributions in redemption
of stock may be characterized either as a sale (i.e., capital gain) or a dividend.
Distribution rule: Under this rule, a partnership's distribution to a partner of partner stock is treated as a redemption
or exchange for a portion of the partner's partnership interest; the Sec.
Typically, the parties have resolved the first issue by negotiating a stock transfer or stock redemption
in their divorce agreement.
Y argues that it did not acquire an interest in a trade or business in the redemption
, because, both before and after the redemption
, it was engaged in the same trade or business and acquired no new assets.
The final regulations are effective for redemptions
occurring on or after Jan.
The most common type of buy-sell agreement is the redemption
The second corporation then redeems its stock held by the first corporation, and the first corporation treats the redemption
as a dividend, because it is related to the U.S.
Commentators argued that the temporary regulations were too broad and should instead have been based on the "solely for voting stock" requirement: Pre-reorganization redemptions
and extraordinary distributions by a target should not be taken into account for COI purposes, unless an acquiring corporation directly or indirectly furnishes the consideration for the redemption
In January 1998, the IRS published temporary and proposed regulations (TD 8761) dealing with the application of the continuity-of-shareholder-interest (COSI) requirement in the context of pre-reorganization redemptions
and extraordinary distributions.