(a) The redemption fails to satisfy any of the tests of §302(b) and therefore fails to fit within the provisions of §302(a) and is required to be tested under §301? (b) The redemption satisfies the test set forth in §302(b)(2) and therefore does fit within the provisions of §302(a).
1)
If the redemption of Black's stock by XYZ Corporation does not satisfy the tests of section 302(b) of the Internal Revenue Code (IRC) and is therefore required to be tested under section 301, the Corporation will recognize a gain in the amount of the difference between the fair market value (FMV) of the real property distributed to Black and its adjusted basis. In this case, the amount of gain would be $420,000 - $245,000 = $175,000.
This gain would be taxed as a long-term capital gain if the Corporation held the real property for more than one year, or as a short-term capital gain if the Corporation held the property for one year or less. The tax rate on capital gains depends on the Corporation's overall tax bracket and can range from 0% to 20%.
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