The term'substantially disproportionate redemption' refers to a situation in corporate taxation where a corporation buys a shareholder's stock. The transaction is able to receive favorable tax treatment as a sale or exchange instead of a dividend. To achieve this, the U.S. tax law (Section 302 of the Internal Revenue Code) necessitates meting certain criteria.

• Upon redemption, the shareholder is required to have less than 50% of the total combined voting power of all classes of stock eligible to vote.
• After the redemption, the shareholder's percentage of voting stock must decrease by more than 80% from before the redemption.
• Shares that are indirectly owned through family members or entities under constructive ownership rules can also be included in the ownership test.
• If these conditions are satisfied, the redemption is treated as a sale or exchange, meaning the shareholder is taxed only on the gain rather than the entire amount being taxed as a dividend.

To comprehend the rules for substantially disproportional redemption, I will utilize a case study.

• An individual shareholder owns 275 share of an "O-Corporaion".
• O-Corporaion has 1000 shares of common stockoutstanding and redeems 200 shares of common stock from its shareholders.
• The least number of "Individual's" shares that will need to be redeemed in order for the redemption to be substantially disproportionate  to Carol is determined are: "Individual" owns 27.5% [(275/1,000) x 100 of "O-Corporation's
   before the redemption (275 shares/1000 shares).
• Individual must reduce interest below to 22% for the redemption to be ubstantially disproportionate (80% x 27.5%).
• Individual needs to own less than 176 shares after the redemption 22% x (1,000 shares - 200 Shares).
• Thus, more than 99% shares  (275 Shares -176 Shares) needs to be redeemed to reduce "Individual's" interest below 22%.

Conclusion: Accordingly ("Individual's) needs to have a minimum of 100 shares redeemed for the redemption to be substantially disproporionate.