Optional Redemptions and Optional Dividends: Taxing the Repurchase of Common Shares,

The growth of share repurchasing as an element of financial strategy for large, publicly held corporations raises an issue of interpretation under the federal income tax that has significance both for ordinary investors and for the revenues. That issue-whether a corporate distribution which results in the retirement of outstanding shares should be treated as essentially equivalent to a taxable dividend-is an entirely familiar one to tax lawyers, but it is one that has typically been confined to closely held or family-owned corporations, whose cash distributions are likely to take whatever form best suits the individual tax and financial interests of their controlling shareholders. By contrast, the owner of stock in a public company is powerless to dictate the form in which corporate distributions may be cast, and the absence of a family or other personal relationship between management and shareholders is generally expected to relieve management of any special concern for the tax objectives of shareholders. Moreover, those objectives are probably so diverse and conflicting that no single distribution policy would seem capable of satisfying all shareholders in equal measure. Consequently, public companies with scattered stockholdings do not commonly generate dividend equivalence problems, and the ordinary investor is rarely an object of the tax collector\u27s suspicion