Question

Calliope Corp. has outstanding 400 shares of common stock of which Yak, So, Day, and Ren each own 100 shares or 25 percent. No stock is considered constructively owned by any of the shareholders under section 318. Calliope redeems 34 shares from Yak, 24 shares from So, and 42 shares from Day. Which shareholder(s) qualify for exchange treatment on this redemption?
I. Yak

II. So

III. Day

a. I and II only.
b. III only.
c. None.
d. II only.

Answer 1

Answer:

Day

Explanation:

To qualify as an exchange, a redemption must be substantially disproportionate. It should be below 80% of what it was before the redemption

They had 25% 80% would be 20% so those shareholders below 20% will be considered exchange:

Yak: 100 - 34 = 66   then 66 / 300 = 22%

So:  100 - 24 = 76   then  76/300 = 25.33%

Day 100 - 42 = 58 then 58/300 = 19.33%

Dya qualifies as decrease below 80% of their previous percentage of owership