Gray Corporation has a deficit in accumulated earnings and profits of $300,000 and has current E&P of $225,000. On July 1 , Gray distributes $250,000 to its sole shareholder, Brian, who has a basis in his stock of $52,500. As a result of the distribution, Brian has: Dividend income of $52,500 and reduces his stock basis to zero. Dividend income of $225,000 and no adjustment to stock basis