At the beginning of the current year, both Gerald and Nicolas own 50% of Apple Corporation. In July, Gerald sold his stock to Sarah for $110,000. At the beginning of the year, Apple Corporation had accumulated E & P of $200,000 and its current E & P is $250,000 (prior to any distributions). Apple distributed $260,000 on March 1 ($130,000 to Gerald and $130,000 to Nicolas) and distributed another $260,000 on October 1 ($130,000 to Sarah and $130,000 to Nicolas). What are the tax implications of the $130,000 distribution to Sarah? ANSWER: