Spartan Corporation made a distribution of $500,000 to Rusty Cedar in partial liquidation of the company on December 31 of this year. Rusty, an individual, owns 100% of Spartan Corporation. The distribution was in exchange for 50% of Rusty's stock in the company. At the time of the distribution, the shares had a fair market value of $200 per share. Rusty's income tax basis in the shares was $50 per share. Spartan had total E&P of $8,000,000 at the time of the distribution.
a. What is the amount and character (capital gain or dividend) of any income or gain recognized per share by Rusty as a result of the partial liquidation?
b. Assuming Spartan made no other distributions to Rusty during the year, by what amount does Spartan reduce its total E&P as a result of the partial liquidation?