| Course | AC430 Advanced Tax - Corporate |
|---|---|
| Unit | Unit 9 |
| Paper type | Redemption analysis |
| Length | About 610 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC430 Unit 9
Forty Shares Back From Rosa: A Unit 9 Redemption Analysis Under Section 302 and Family Attribution
[Student Name]
Purdue University Global
AC430: Advanced Tax - Corporate
Unit 9 Redemption Analysis
[Instructor Name]
[Date]
The company, its owners and every figure are composite; the statutes and case cited are real.
Facts
Westbrook Furniture, Inc. redeems 40 of Rosa's 60 shares for $1,600,000, or $40,000 a share. Rosa's basis is $5,000 a share. Westbrook's E&P exceeds $3 million. Rosa has held her shares for over twenty years.
Ownership Table
1. Rosa: before, 60 direct plus 25 attributed from her son, 85 of 100, 85 percent. After, 20 direct plus 25 attributed, 45 of 60, 75 percent.
2. Son: before, 25 direct plus 60 attributed from his mother, 85 percent. After, 75 percent.
3. Employee: 15 of 100 before, 15 of 60 after, 25 percent; no attribution.
Under Section 318(a)(1), shares owned by an individual's spouse, children, grandchildren or parents are counted as that individual's own (Constructive Ownership of Stock, 2024). Rosa's direct holding falls from 60 percent to a third, but the son's 25 shares count as hers.
Part 1: Substantially Disproportionate Redemption
Section 302(b)(2) gives exchange treatment only when two conditions hold afterward: the shareholder's voting interest is under 50 percent, and it is under four-fifths of what she held before (Redemption of Stock, 2024). Eighty percent of 85 percent is 68 percent. Rosa's 75 percent fails both tests.
Part 2: Not Essentially Equivalent to a Dividend
Section 302(b)(1) requires a meaningful reduction in the shareholder's proportionate interest, and the Supreme Court held that a redemption from a shareholder who keeps the same control, counting attributed stock, does not qualify regardless of business purpose (United States v. Davis, 1970). Rosa, with her son, keeps three-quarters of the votes. There is no meaningful reduction.
Counting her son's shares, Rosa controls Westbrook as firmly after the redemption as before, so the law treats the $1,600,000 as what it economically resembles: a distribution of earnings to the family that owns the company.
Result of Parts 1 and 2: the $1,600,000 is a distribution under Section 301. With E&P above $3 million, it is all a qualified dividend, taxed at 23.8 percent once the net investment income tax is added, about $380,800. The $200,000 of basis Rosa had in the 40 shares does not disappear; it moves to her 20 remaining shares.
Part 3: Complete Termination With the Waiver
Suppose instead Westbrook redeems all 60 of Rosa's shares for $2,400,000. She then owns nothing directly, but would still be treated as owning her son's 25 shares unless she waives family attribution. Under Section 302(c)(2) she may do so if she holds no remaining stake in Westbrook beyond being a creditor, acquires none for ten years except by inheritance, and files an agreement to notify the IRS if she does. Having met those conditions, she has a complete termination under Section 302(b)(3) and exchange treatment.
Result: amount realized $2,400,000, less basis $300,000, long-term capital gain $2,100,000. At 23.8 percent, about $499,800, but on $2,100,000 of gain rather than $1,600,000 of dividend with no basis recovered.
Comparison
Partial redemption: $1,600,000 received, all dividend, about $380,800 of tax, and Rosa keeps 20 shares and a seat on the board. Complete termination: $2,400,000 received, $300,000 of basis recovered, about $499,800 of tax, and Rosa leaves the company entirely, including her role as an officer and director.
Corporate Block
If the redemption is a dividend, Westbrook's E&P falls by $1,600,000. If it is an exchange, the reduction is limited to the redeemed shares' ratable share of E&P, 60 percent in the complete termination (Effect on Earnings and Profits, 2024).
References
Constructive Ownership of Stock, 26 U.S.C. § 318 (2024).
Effect on Earnings and Profits, 26 U.S.C. § 312 (2024).
Redemption of Stock, 26 U.S.C. § 302 (2024).
United States v. Davis, 397 U.S. 301 (1970).
What the AC430 Unit 9 assignment asks for
Unit 9 of AC430 asks you to determine whether a stock redemption is treated as an exchange or a distribution. Start with an ownership table showing each shareholder's direct and constructive holdings before and after, applying the attribution rules of Section 318. Test the substantially disproportionate route under Section 302(b)(2): both the under-50-percent test and the 80-percent-of-before test, computed on constructive ownership. Test the not-essentially-equivalent route under Section 302(b)(1), applying the Supreme Court's meaningful reduction standard. Where the facts allow, consider a complete termination under Section 302(b)(3) and the family attribution waiver, listing its conditions. State the tax result of each outcome for the shareholder, including what happens to basis. Add the corporate side: the reduction in E&P under each treatment. Compare the outcomes in a way the client could use. Cite the Code sections and the governing case in APA 7.
How the AC 430 Unit 9 example is put together
The sample states the redemption of 40 shares at $40,000 each, Rosa's $5,000 basis per share and E&P above $3 million. An ownership table computes 85 percent before and 75 percent after for Rosa and her son. Part 1 applies the two Section 302(b)(2) tests against a 68 percent threshold. Part 2 cites United States v. Davis and finds no meaningful reduction. The highlighted sentence explains why the law sees a family distribution. The result treats all $1,600,000 as a qualified dividend, about $380,800 of tax, with the $200,000 of basis moving to her remaining shares. Part 3 reruns the facts as a full redemption with the Section 302(c)(2) waiver and its conditions, producing $2,100,000 of gain. A comparison sets out what she receives, pays and keeps under each, and the corporate block covers E&P.
Where the points sit in the AC430 Unit 9 rubric
AC430 redemption analyses are marked on correct attribution, correct application of each test and accurate consequences. The ownership table must apply Section 318 to every relevant holder, and graders check that percentages after the redemption use the reduced share count. Both parts of the substantially disproportionate test must be computed. The meaningful reduction analysis should cite the governing case and apply it to control. Where a complete termination is considered, the waiver's conditions must be listed precisely, including the ten-year rule and the filing requirement. Consequences must address basis in both outcomes. The corporate E&P effect differs by treatment and should be stated. A comparison the client can act on shows judgment. Precise citations in APA 7 bring in the closing points for this Purdue Global unit.
Common AC430 Unit 9 mistakes, and how to avoid them
Many Unit 9 analyses compute percentages on direct ownership only, missing family attribution. Others compute after-redemption percentages on the original 100 shares. Only one of the two Section 302(b)(2) tests is checked. Business purpose is argued as if it could satisfy the meaningful reduction test. The waiver is applied to a partial redemption. Basis in redeemed shares is said to be lost under dividend treatment. The corporate side is omitted. If your facts involve entity attribution, a redemption to pay death taxes or a partial liquidation, our writers can lay out the attribution and run each Section 302 test on your case.
Get an AC430 Unit 9 example written to your instructions
Include the share table from the Unit 9 problem, the basis of every holder, the E&P balance and the rubric. Attribution is applied before any test, each Section 302 route is worked to its consequence, and the analysis returns within 24-48h. The first custom sample costs nothing, and the family is invented. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC430 Unit 9 questions, answered
Why does the son's stock count as Rosa's?
Section 318(a)(1) treats an individual as owning stock held by a spouse, children, grandchildren and parents. Rosa's son's 25 shares are therefore hers for Section 302 purposes, which is why a buyback that cuts her direct holding to a third still leaves her in control. Siblings are not on the list, so a problem with a brother instead of a son would come out differently.
Can the waiver ever be used for a partial redemption?
No. The family attribution waiver in Section 302(c)(2) applies only to a complete termination under Section 302(b)(3), and it requires Rosa to give up every interest other than as a creditor and to file an agreement. The example includes the waiver route to show the contrast, since prompts in this unit often ask which structure would have produced sale treatment.
What happens to the company's E&P after the redemption?
If the redemption is an exchange, Section 312(n)(7) limits the E&P reduction to the redeemed shares' ratable share. If it is a dividend, E&P falls by the dividend amount. The example states both in its corporate block, briefly, because many rubrics ask for consequences at the corporate level as well as for the shareholder.
Where can I find a free AC430 Unit 9 sample paper?
This page holds a complete AC430 Unit 9 redemption analysis of a composite furniture maker's buyback, with an attribution table, the Section 302 tests, a complete termination alternative, the corporate side and APA 7 citations.
Why does Rosa's AC430 Unit 9 redemption fail the 80 percent test?
Counting her son's shares, she owned 85 percent before. Eighty percent of that is 68 percent, and after the redemption she owns 75 percent, so the reduction is not large enough.