Reference no: EM133620617
Problem I. All of the stock of K Corporation is owned by L and M. L and M are unrelated individuals. L owns 50 shares of the voting common stock of K Corporation, and M owns 50 shares of such voting common. Each shareholder has a basis of 5 in each share. The voting common is the sole class of stock of K Corporation, and no other shares are outstanding. K Corporation redeems for cash of 100 10 of M's shares, twenty percent of M's shares. Do you believe the requirements of Section 302(b)(2) are met with respect to such redemption? Explain briefly your analysis.
Problem II. All of the stock of K Corporation is owned by L and M. L and M are unrelated individuals. L owns 50 shares of the voting common stock of K Corporation, and M owns 50 shares of such voting common. Each shareholder has a basis of 5 in each share. The voting common is the sole class of stock of K Corporation, and no other shares are outstanding. K Corporation redeems for cash of 100 10 of M's shares, twenty percent of M's shares. Do you believe it can be argued that the redemption of 10 of M's common shares in K Corporation is not essentially equivalent to a dividend within the meaning of Section 302(b)(1)? Explain your reasoning.
Problem III. Assume again the same basic facts as in question I, but in this case L is a partnership. N, an individual unrelated to L and M, owns a 60 percent interest in the capital, profits and losses of L, and M has a 40 percent interest in such capital, profits and losses of L. Again, before the redemption transaction in question, L owns 50 voting common shares in K Corporation and M owns 50 such shares. In this case K Corporation redeems 20 of M's voting common in K Corporation. Do you believe that the requirements of Section 302(b)(2) would be satisfied by this redemption transaction?