During the current year, Gnatcatcher, Inc., (E & P of $1,450,000) distributed $750,000 each to Brandi and Yuen in redemption of some of their Gnatcatcher stock. The two shareholders acquired their shares five years ago. Each shareholder is in the 32% tax bracket, and each had a $187,500 basis in the redeemed stock. Assume taxpayers in the 32% tax bracket are subject to the long-term capital gains and qualified dividends tax rate of 15%.

If required, round your answers to nearest dollar.

a.Assume that the distribution to Brandi is a qualifying stock redemption.

The distribution is taxed as a_______

and Brandi's tax liability is $______

.

b.Assume that the distribution to Yuen is a nonqualified stock redemption.

The distribution is taxed a________

and Yuen's tax liability is________

.