Corporation Z is owned entirely by two individuals, C and D. C owns 60 shares of Z common stock bought in one transaction for 1,200. D owns 40 shares of Z common stock with a basis of $60 per share. The stock's fair market value is $40 per share. Z's E&P is $1,000. C sells 10 shares back to Z for $400.

a The redemption will be treated as a dividend

b The redemption will be treated as a sale under 302(b)(2), substantially disproportionate disposition.

c It is impossible to tell how the redemption will be treated.

d The redemption will be treated as a sale under 302(b)(1), not essentially equivalent to a dividend

e None of the above