Richard E. and Mary Ann Hurst - Page 10

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          holder’s basis in his stock.  (Some of the Hursts’ proceeds from            
          their sales of their stock benefited from these rules, but that             
          was not a point of contention in the case.)                                 
               For much of the Code’s history (including 1997), noncorpor-            
          ate sellers usually preferred a redemption to be treated as a               
          sale because that offered the advantage of taxation at capital              
          gains rates and the possible recognition of that gain over many             
          years under section 453’s provisions for installment sales.  This           
          preference led to increasingly elaborate rules for determining              
          which redemptions qualify as sales and which are treated as divi-           
          dends or other section 301 distributions.  The Code has three               
          safe harbors:  redemptions that are substantially disproportion-            
          ate with respect to the shareholder, sec. 302(b)(2); redemptions            
          that terminate a shareholder’s interest, sec. 302(b)(3); and                
          redemptions of a noncorporate shareholder’s stock in a corpora-             
          tion that is partially liquidating, sec. 302(b)(4).  Each of                
          these safe harbors comes with its own regulations and case law.             
               The Code also allows redemption treatment if a taxpayer can            
          meet the vaguer standard of proving that a particular redemption            
          is “not essentially equivalent to a dividend.”  Sec. 302(b)(1).             
          The relevant regulation notes that success under this standard              
          turns “upon the facts and circumstances of each case.”  Sec.                
          1.302-2(b), Income Tax Regs.                                                

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