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TITLE 26-INTERNAL REVENUE CODE SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 245, 279, 302, 305. 306, 316, 317, 331, 341, 356, 877, 1024, 2107, 2501 of this title. § 302. Distributions in redemption of stock (a) General rule If a corporation redeems its stock (within the meaning of section 317(b)), and if paragraph (1), (2), (3), or (4) of subsection (b) applies, such redemption shall be treated as a distribution in part or full payment in exchange for the stock. (b) Redemptions treated as exchanges (1) Redemptions not equivalent to dividends Subsection (a) shall apply if the redemption is not essentially equivalent to a dividend. (2) Substantially disproportionate redemption of stock (A) In general Subsection (a) shall apply if the distribu- tion is substantially disproportionate with respect to the shareholder. (B) Limitation This paragraph shall not apply unless im- mediately after the redemption the share- holder owns less than 50 percent of the total combined voting power of all classes of stock entitled to vote. (C) Definitions For purposes of this paragraph, the distri- bution is substantially disproportionate if- (i) the ratio which the voting stock of the corporation owned by the shareholder immediately after the redemption bears to all of the voting stock of the corpora- tion at such time, is less than 80 percent of- (ii) the ratio which the voting stock of the corporation owned by the shareholder immediately before the redemption bears to all of the voting stock of the corpora- tion at such time. For purposes of this paragraph, no distribu- tion shall be treated as substantially dispro- portionate unless the shareholder's owner- ship of the common stock of the corpora- tion (whether voting or nonvoting) after and before redemption also meets the 80 percent requirement of the preceding sen- tence. For purposes of the preceding sen- tence, if there is more than one class of common stock, the determinations shall be made by reference to fair market value. (D) Series of redemptions This paragraph shall not apply to any re- demption made pursuant to a plan the pur- pose or effect of which is a series of re- demptions reulting in a distribution which (in the aggregate) is not substantially dis- proportionate with respect to the share- holder. (3) Termination of shareholder's interest Subsection (a) shall apply if the redemption is in complete redemption of all of the stock of the corporation owned by the shareholder, (4) Stock issued by railroad corporations In certain reorganizations Subsection (a) shall apply if the redemption is of stock issued by a railroad corporation (as defined in section 77(m) of the Bankruptcy Act, as amended) pursuant to a plan of reor- ganization under section 77 of the Bankrupt- cy Act. (5) Application of paragraphs In determining whether a redemption meets the requirements of paragraph (1), the fact that such redemption fails to meet the requirements of paragraph (2), (3), or (4) shall not be taken into account. If a redemp- tion meets the requirements of paragraph (3) and also the requirements of paragraph (1), (2), or (4), then so much of subsection (c)(2) as would (but for this sentence) apply in re- spect of the acquisition of an interest in the corporation within the 10-year period begin- ning on the date of the distribution shall not apply. (c) Constructive ownership of stock (1) In general Except as provided in paragraph (2) of this subsection, section 318(a) shall apply in deter- mining the ownership of stock for purposes of this section. (2) For determining termination of interest (A) In the case of a distribution described in subsection (b)(3), section 318(a)(1) shall not apply if- (i) immediately after the distribution the distributee has no interest in the cor- poration (including an interest as officer, director, or employee), other than an in- terest as a creditor, (ii) the distributee does not acquire any such interest (other than stock acquired by bequest or inheritance) within 10 years from the date of such distribution, and (iII) the distributee, at such time and in such manner as the Secretary by regula- tions prescribes, files an agreement to notify the Secretary of any acquisition de- scribed in clause (i) and to retain such re- cords as may be necessary for the applica- tion of this paragraph. If the distributee acquires such an interest in the corporation (other than by bequest or inheritance) within 10 years from the date of the distribution, then the periods of limitation provided in sections 6501 and 6502 on the making of an assessment and the collection by levy or a proceeding in court shall, with respect to any deficiency (including interest and additions to the tax) resulting from such acquisition, include one year immediately following the date on which the distributee (in accordance with regulations prescribed by the Secretary) no- tifies the Secretary of such acquisition; and such assessment and collection may be made notwithstanding any provision of law or rule of law which otherwise would pre- vent such assessment and collection. (B) Subparagraph (A) of this paragraph shall not apply if- (I) any portion of the stock redeemed was acquired, directly or indirectly, within Page 232 § 302