A owns all 100 shares of T stock. On January 1 of Year 1, P purchases 40 shares of the T stock from A. On July 1 of Year 1, T redeems 25 shares from A. On December 1 of Year 1, P purchases 20 shares of the T stock from A.
P makes a qualified stock purchase of T on December 1 of Year 1, because the 60 shares of T stock purchased by P within the 12-month period ending on that date satisfy the 80-percent ownership requirements of section 338(d)(3) (i.e., 60/75 shares), determined by taking into account the redemption of 25 shares.
P buys 40 shares on January 1, T redeems 25 shares from A on July 1, and P buys 20 more shares on December 1.
The 25-share redemption reduces T’s outstanding stock, so P’s 60 shares are measured against 75 shares, not 100.
60 of 75 shares equals 80 percent, satisfying the ownership requirement of section 338(d)(3) on December 1 of Year 1.
Because the 12-month window and the 80-percent test are both satisfied, P makes a qualified stock purchase of T.
