1 answer

What is a corporate redemption? What are the tax consequences to the shareholder in a qualifying...

Question:

What is a corporate redemption?

What are the tax consequences to the shareholder in a qualifying redemption?

What are they if it is not a qualifying redemption?


Answers

Solution. As the name suggests redemption means buyback. A corporate redemption is when the corporation is repurchasing redeemable shares again and acts as a safeguard against fraud and other schemes. A redemption is done to retire the present holding stock.

Tax consequences depends on such qualified redemption stocks relative equity interest of the stockholder. In case of similar interest rate, it is treated the same as dividend redemption payment; in case of fall in interest rate, it is treated as capital sale generating/incurring profit/loss to corporation under set rules and regulations of IRS.

It will be treated as sale for redemption at fair market value.

.

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