At the beginning of the year, Sarah owns 60% and Jan owns 40% of Star

Corporation, a calendar year taxpayer. Star makes a $210,000 distribution to Sarah on April 1 and a

$140,000 distribution to Jan on May 1. On July 1, Sarah sells 2/3 of her shares to Rachel for

$550,000. Star makes another distribution of $350,000 on September 1 ($70,000 to Sarah,

$140,000 each to Jan & Rachel). Star's current E & P is $200,000 and its accumulated

E & P is $340,000.

REQUIRED:

What are the tax consequences of these distributions to Sarah, Jan, and Rachel?

Assume each individual has adequate stock basis to cover distributions in excess of E&P, so calculate total

taxable dividend and total non-taxable return of capital to each person