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FEDERAL INCOME, ESTATE & GIFT TAX PROJECT i (1956)

handle is hein.ali/aliftp0202 and id is 1 raw text is: I Insert p. I Addendum (Insert the following at the end of page 2 of Preliminary Draft 195A regarding Stock Redemptions:) In addition it should be noted that in order to have a redemption which meets the 80% test and not the 50% test the company having only common stock outstanding will have to be reduced at least 25% in size and may be reduced a great deal more. For example, the smallest percentage of stoch which a share- holder can own before redemption and still have 50% of the company's stock after a redemption qualifying under the 80% test is 62-1/2%(+). That is, if a company with 100 shares redeems 25 (+) shares of stock from a shareholder who owned 62-1/2 shares the 80% test is met (37-1/2(+)- is ( 75 less than 80% of 62-1/2(+). ) A 50% interest, however, is still retained. 10 o ) The company is reduced to 3/4 of its former aize. As the majority share- holder interest prior to the redemption increases, the reduction in the size of the company, i. e. , the amount of shares which must be redeemed to meet the 80% test, correspondingly increases. Thus, if ninety-nine shares are owned by a stockholder prior to redemption in a company with 100 shares outstanding, approximately ninety-five of his shares have to be redeemed to effect a 20% reduction of his percentage interest in the company (which will meet the 80% test), thereby reducing the company to 1/20th of its former size. This effect of the 80% test raises the additional consideration that in view of the fact that such drastic reductions are needed in order to satis- fy the 80% test perhaps there is little need for the 50% in addition thereto.

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