Family Corporation, a corporation controlled by Buddy's family, redeems all of Buddy's stock. For the redemption to be treated as a sale, which one of the following conditions must be met? A. Buddy cannot acquire an interest, even by inheritance, for 10 years unless the bequest was made prior to the redemption. B. Buddy must have purchased the redeemed stock from a person whose stock ownership would be attributed to Buddy. C. Buddy cannot be a creditor of the corporation after the redemption. D. Buddy cannot be an officer of the corporation after the redemption.

C. Buddy cannot be a creditor of the corporation after the redemption.

Explanation:

"A stock redemption that terminates a shareholder's entire stock ownership in a corporation will qualify for sale or exchange treatment under § 302 (b) (3). The attribution rules generally apply in determining whether the shareholder's stock ownership has been completely terminated. However, the family attribution rules do not apply to a complete termination redemption if the following conditions are met:

The former shareholder has no interest, other than that of a creditor, in the corporation for at least 10 years after the redemption (including an interest as an officer, director, or employee).

The former shareholder files an agreement to notify the IRS of any prohibited interest acquired within the 10-year period and to retain all necessary records pertaining to the redemption during this time period."

Reference: South-Western, Thomson. "Chapter 5." To Qualify for Sale or Exchange Treatment, a Stock Redemption Generally Must Result in a Substantial Reduction in a Shareholde, 2005,