(1) Redemptions not equivalent to dividends
Subsection (a) shall apply if the redemption is not essentially equivalent to a dividend.
(2) Substantially disproportionate redemption of stock
(A) In general
Subsection (a) shall apply if the distribution is substantially disproportionate with respect to the shareholder.
(B) Limitation
This paragraph shall not apply unless immediately after the redemption the shareholder owns less than 50 percent of the total combined voting power of all classes of stock entitled to vote.
(C) Definitions
For purposes of this paragraph, the distribution is substantially disproportionate if -
(i) the ratio which the voting stock of the corporation owned by the shareholder immediately after the redemption bears to all of the voting stock of the corporation at such time,
is less than 80 percent of -
(ii) the ratio which the voting stock of the corporation owned by the shareholder immediately before the redemption bears to all of the voting stock of the corporation at such time.
For purposes of this paragraph, no distribution shall be treated as substantially disproportionate unless the shareholder's ownership of the common stock of the corporation (whether voting or nonvoting) after and before redemption also meets the 80 percent requirement of the preceding sentence. For purposes of the preceding sentence, if there is more than one class of common stock, the determinations shall be made by reference to fair market value.
(D) Series of redemptions
This paragraph shall not apply to any redemption made pursuant to a plan the purpose or effect of which is a series of redemptions resulting in a distribution which (in the aggregate) is not substantially disproportionate with respect to the shareholder.
(3) Termination of shareholder's interest
Subsection (a) shall apply if the redemption is in complete redemption of all of the stock of the corporation owned by the shareholder.
(4) Redemption from noncorporate shareholder in partial liquidation
Subsection (a) shall apply to a distribution if such distribution is -
(A) in redemption of stock held by a shareholder who is not a corporation, and
(B) in partial liquidation of the distributing corporation.
(5) Redemptions by certain regulated investment companies
Except to the extent provided in regulations prescribed by the Secretary, subsection (a) shall apply to any distribution in redemption of stock of a publicly offered regulated investment company (within the meaning of section 67(c)(2)(B)) if -
(A) such redemption is upon the demand of the stockholder, and
(B) such company issues only stock which is redeemable upon the demand of the stockholder.
(6) Application of paragraphs
In determining whether a redemption meets the requirements of paragraph (1), the fact that such redemption fails to meet the requirements of paragraph (2), (3), or (4) shall not be taken into account. If a redemption meets the requirements of paragraph (3) and also the requirements of paragraph (1), (2), or (4), then so much of subsection (c)(2) as would (but for this sentence) apply in respect of the acquisition of an interest in the corporation within the 10-year period beginning on the date of the distribution shall not apply.