Shareholder selling the corporation's own stock back to the corporation instead of a third party. Not part of a liquidation in an ordinary stock redemption, the corporation normally continues to operate at the same level as it did before the redemption. Other shareholders do not have cash 2 Corporation has cash Corporation can - increase earnings per share and reduce dividend pay out. Seller wishes to sell entire interest in business Buyer does not have enough cash.
Seller sells part of stock to corporation and part to new buyer.
One transaction related to another. No double taxation of dividends. Use basis in stock to offset proceeds. Not be essentially equivalent to a dividend 1. Facts and circumstances test - Must have business purpose other than tax avoidance.