My question is would Horace's tax liability on the $5000 gain on the sale of stock as ordinary income and subject to 37% tax or a long-term capital gain and taxed at 20%?  Information Horace owns stock in Kumquat, Inc.  Since the stock of Kumquat, a C-corporation, is not traded on an exchange, Kumquat must redeem the stock in order for shareholders to “sell” their stock.   Kumquat has $1,000,000 in E&P.   In 2022, Horace would like to redeem 700 of his 800 shares of stock.  Thus, after the stock is redeemed, he would own 100 shares of stock.  Kumquat has agreed to buy-back 700 shares of Horace’s stock for $40,000.  Horace’s paid $50/share for his stock in 2000.    Before this redemption, the stock in Kumquat is owned as follows: Horace                                800 shares Elaine (Horace’s sister)     2,200 shares Clyde (Horace’s son)         600 shares Plum Partnership (Horace has a 10% interest) 800 shares Grape Corporation (Horace owns 60%) 800 shares Horace is in the 37% tax bracket.

My question is would Horace's tax liability on the $5000 gain on the sale of stock as ordinary income and subject to 37% tax or a long-term capital gain and taxed at 20%? 

Information
Horace owns stock in Kumquat, Inc.  Since the stock of Kumquat, a C-corporation, is not traded on an exchange, Kumquat must redeem the stock in order for shareholders to “sell” their stock.   Kumquat has $1,000,000 in E&P.  

In 2022, Horace would like to redeem 700 of his 800 shares of stock.  Thus, after the stock is redeemed, he would own 100 shares of stock.  Kumquat has agreed to buy-back 700 shares of Horace’s stock for $40,000.  Horace’s paid $50/share for his stock in 2000. 

Before this redemption, the stock in Kumquat is owned as follows:

• Horace                                800 shares
• Elaine (Horace’s sister)     2,200 shares
• Clyde (Horace’s son)         600 shares
• Plum Partnership (Horace has a 10% interest) 800 shares
• Grape Corporation (Horace owns 60%) 800 shares

Horace is in the 37% tax bracket.