Blue Corporation has accumulated E&P of $38,000 at the beginning of the current tax year. Current E&P is $24,000. During the year, the corporation makes the following distributions to its sole shareholder who has a $25,000 basis for her stock.

Date Amount Distributed

April 1 $40,000

June 1 15,000

August 1 20,000

November 1 5,000

The treatment of the $20,000 August 1 distribution would be:

A) $20,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P.`

B) $20,000 is taxable as a dividend from accumulated E&P.

C) $6,000 is taxable as a dividend from accumulated E&P, and $14,000 is tax-free as a return of capital.

D) $6,000 is taxable as a dividend from current E&P, and $14,000 is tax-free as a return of capital.

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