Tracy and Lance, Equal Shareholders in Macaw Corporation, Receive $600,000

question 85

Multiple Choice

Tracy and Lance, equal shareholders in Macaw Corporation, receive $600,000 each in distributions on December 31 of the current year. Macaw's current year taxable income is $1 million and it has no accumulated E & P. Last year, Macaw sold an appreciated asset for $1,200,000 (basis of $400,000) . Payment for one-half of the sale of the asset was made this year. How much of Tracy's distribution will be taxed as a dividend?

• A) $0
• B) $300,000
• C) $500,000
• D) $600,000
• E) None of the above

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Definitions:

Saturation Level

The maximum extent or degree to which something can be absorbed or saturated.

Negative Afterimage

A visual phenomenon where an image continues to appear in one's vision after the exposure to the original image has ceased, typically in complementary colors.

Blue-Colored Square

A geometric shape with four equal sides, fully enclosed, and filled with the color blue.

Red-Colored Square

A geometric figure with four equal sides and angles, distinguished by its red pigmentation or shade.