Duncan Inc. (a C corporation) has two shareholders: Jane (65%) and Shane (35%). In a current distribution, the corporation distributes $100,000 in total (each shareholder receiving according to the proportionate share of ownership). At the time of the distribution, the corporation's total E&P was $60,000, Jane's basis in the corporate stock was $12,000 and Shane's basis was $37,000.

What are the tax consequences of this distribution to Jane?

Select one:

a. $60,000 dividend income; $5,000 tax-free return of capital. Stock basis after the distribution is $7,000.

b. $60,000 dividend income; $12,000 tax-free return of capital; $28,000 capital gains. Stock basis after the distribution is zero.

c. $39,000 dividend income; $26,000 capital gains. Stock basis after the distribution is zero.

d. $39,000 dividend income; $12,000 tax-free return of capital, $14,000 capital gains. Stock basis after the distribution is zero.