Corporation had current and accumulated E\&P of $560,000 at December 31 , year 1. On December 31 , the company made a distribution of land to its sole shareholder. The land's fair market value was $260,000 and its tax and E\&P basis to Corporation was $56,000. The tax consequences of the distribution to the (assume a 0 percent marginal tax rate for Corporation): No gain recognized and a reduction in E\&P of $56,000 $204,000 tax and current E\&P gain recognized and a reduction in E\&P of $260,000 $204,000 tax and current E&P gain recognized and a reduction in E&P of $56,000 No gain recognized and a reduction in E\&P of $260,000