Boots, Inc. is owned equally by Frank Albert and his daughter Nancy, each of whom held 1,000 shares in the company. Frank wants to retire from the company, and it was decided that the company will redeem all 1,000 of his shares for $25,000 per share on December 31 of this year. Frank's income tax basis in each share is $500. Boots, Inc. has current E&P of $1,000,000 and accumulated E&P of $5,000,000.

1. What must Frank do to ensure that the redemption will be treated as an exchange?

2. If Frank remained as the Chairman of the Board after the redemption, what is the amount and character (capital gain or dividend) of income that Frank will recognize this year?

3. If Frank treats the redemption as a dividend, what happens to his stock basis in the 1,000 shares redeemed?