Donna Kirkpatrick formed Racing Cars Corporation early this century with an investment of $5 million in cash, for which she received $4 million in common stock and $1 million in bonds bearing interest of 9% with maturity in 2015. In 2007, Donna lent another $1 million on a personal note with 2% interest. This year Racing Cars becomes insolvent after Donna tries to take the first turn at an unauthorized speed of 250 mph, destroying the last car owned by Racing. Sponsors pulled all of their support, and Donna had to send pitiful termination letters to the pit crew and staff. Racing Cars Corporation has to file bankruptcy. During the last two years, Donna was paid an annual salary of $10 million. Donna wants you to consider the above information and explain to her the possible tax positions of Racing in the last year of business. She also wants to know her personal tax situation considering the worthless stock she now uses as floor mats in her new pickup. How would you handle this tax situation?