Reg. § 1.302-1 General.
(a) Under section , unless otherwise provided in subchapter C, chapter 1 of the Code, a distribution in redemption of stock shall be treated as a distribution of property to which section applies if the distribution is not within any of the provisions of section . A distribution in redemption of stock shall be considered a distribution in part or full payment in exchange for the stock under section provided paragraph (1), (2), (3), or (4) of section applies. Section (relating to constructive ownership of stock) applies to all redemptions under section except that in the termination of a shareholder's interest certain limitations are placed on the application of section by section . The term redemption of stock is defined in section . Section does not apply to that portion of any distribution which qualifies as a distribution in partial liquidation under section . For special rules relating to redemption of stock to pay death taxes see section . For special rules relating to redemption of section stock see section . For special rules relating to redemption of stock in partial or complete liquidation see section .
(b) If, in connection with a partial liquidation under the terms of section , stock is redeemed in an amount in excess of the amount specified by section , section shall first apply as to each shareholder to which it is applicable without limitation because of section . That portion of the total distribution which is used in all redemptions from specific shareholders which are within the terms of section shall be excluded in determining the application of sections and . For example, Corporation X has $50,000 which is attributable to the sale of one of two active businesses and which, if distributed in redemption of stock, would qualify as a partial liquidation under the terms of section . Corporation X distributes $60,000 to its shareholders in redemption of stock, $20,000 of which is in redemption of all of the stock of shareholder A within the meaning of section . The $20,000 distributed in redemption of the stock of shareholder A will be excluded in determining the application of sections and . The entire $60,000 will be treated as in part or full payment for stock ($20,000 qualifying under section and $40,000 qualifying under sections and ).