A payment of excessive compensation may be recharacterized as a distribution by the corporation for which no deduction is allowed; however, neither the payment nor the distribution created by the recharacterization results in a second class of stock.
However, any agreement providing for the purchase or redemption of stock at book value or at a price between FMV and book value will not result in a second class of stock.(18)
Obligations that are considered equity but do not meet this safe harbor will not result in a second class of stock unless they are used to contravene the rights of the outstanding shares of stock or the limitation on eligible shareholders.(24)
However, such a recharacterization would not result in a second class of stock.(26)