Section 2 General Rules

• Library: Bus Trans 2005

I.R.C. § 302(a) provides that, if a corporation redeems (i.e., purchases) its stock from a stockholder and if paragraph (1), (2), (3), or (4) of I.R.C. § 302(b) applies, the redemption will be treated as a distribution in part or full payment in exchange for the stock, i.e., resulting in capital gain or loss treatment if the stock is a capital asset in the hands of the redeeming shareholder. Under the Jobs and Growth Tax Relief Reconciliation Tax Act of 2003, Pub. L. No. 108-27, 117 Stat. 752, the maximum rate on adjusted net capital gain is 15% (5% for taxpayers in the 10–15% brackets) for both the regular tax and the alternative minimum tax. H.R. Conf. Rep. No. 108–126, at 24–30 (2003). The lower rates apply on sales or exchanges (and payments received) on or after May 6, 2003, and before January 1, 2009, of assets held for more than one year. See I.R.C. § 1(h). Dividend distributions received by an individual shareholder in tax years beginning after 2002 and before 2009 from domestic corporations (and certain qualified foreign corporations) are taxed at the same rate as net capital gains. In other words, dividends are taxed at a rate...