Corporation W onws 100% of the common stock of Corporation Z with a basis of $300. Z owns a rental building (its only assets) with a gross fair market value of $3,000, subject to a non-recourse mortgage of $1,200. Z's adjusted basis for this building is $900. Z has $600 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Z and W do not report on a consolidated basis. Z distributes the building to W in complete liquidation and W sells the building to Corparation V for $1,800 cash, subject to the debt.

New assumption: same facts as above, except that besides W Corporation several shareholders own Z's pure preferred outstanding stock which represents 1/4 of the Z's equity value and which is entitled to 1/4 of Z's net asset value upon liquidation. Assume 1504(a)(4)(C) is met.

a 332 does not apply because W does not own 80% of the voting stock and value of all classes of stock.

b Neither W nor the pure preferred shareholders would recognize gain.

c Z would recognize no gain on a distribution of the building in-king proportionately to W and the pure preferred shareholders.

d Z would recognize gain under 337 on the distribution of the building in-kind since either shareholder is an 80% distributee.

e None of the above.

Which one is the correct answer and why?