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corporations acquires stock in the other corporation from the
person so in control, then such property shall be treated as a
distribution in redemption of the stock of the corporation
acquiring such stock. See also Rev. Rul. 70-496, 1970-2 C.B. 74.
If a stock acquisition is governed by section 304(a), any
determination as to whether the stock acquisition is to be
treated as a distribution in part or full payment in exchange for
the stock must be made by reference to the stock of the issuing
corporation.31 Sec. 304(b)(1). Section 318, as modified by
section 304(b)(1), applies in determining whether the requisite
control under section 304(a) exists.
Section 304(a)(1) recharacterizes what appears to be a sale
as a redemption by treating the sale proceeds as a distribution
in redemption of the acquiring corporation’s stock and requiring
that the tax consequences of the distribution be determined under
sections 301 and 302. Section 302(a) provides that if a
corporation redeems its stock, the redemption shall be treated as
a distribution in part or full payment in exchange for the stock
if the redemption qualifies as one of four types of redemptions
listed in section 302(b)-–a redemption that is not essentially
equivalent to a dividend (section 302(b)(1)), a substantially
disproportionate redemption of stock (section 302(b)(2)), a
31In this case, the issuing corporations are Merlease, the
five subsidiaries, ML Interfunding, Leasing Equipment, and Vessel
Leasing. See sec. 304(b)(1).
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