What is the primary requirement for a stock redemption to be considered 'not essentially equivalent to a dividend'?

Understand the Problem

The question is asking about U.S. tax law, specifically what condition must be met for a stock redemption to be taxed as a capital gain rather than as a dividend. Generally, a stock redemption is treated as a dividend, which is taxed at a higher rate. However, there are exceptions where it can be treated as a sale of stock, resulting in a capital gain, which is often taxed at a lower rate. The condition for this exception is that the redemption must 'not be essentially equivalent to a dividend'.