On December 15 of Year 1, T redeems 30 percent of its stock from P. The redeemed stock was held by P for several years and constituted P’s total interest in T. On December 1 of Year 2, P purchases the remaining T stock from A.
P does not make a qualified stock purchase of T on December 1 of Year 2. For purposes of the 80-percent ownership requirements of section 338(d)(3), the redemption of P’s T stock on December 15 of Year 1 is not taken into account as a reduction in T’s outstanding stock.
P’s redeemed 30 percent had been held for several years and was P’s entire interest in T.
Because the shares were P’s own long-held stock, the redemption is not counted as a reduction in T’s outstanding stock.
When P buys the remaining T stock from A on December 1 of Year 2, the 80-percent test is measured without the redemption benefit.
On these facts P does not make a qualified stock purchase of T, so no section 338 election is available.
