James Corporations is owned eighty percent (80%) by John and twenty percent (20%) by Lee who are unrelated to each other. At the time of a Complete Liquidation, James Corporation owned Land that had a Fair Market Value of $100,000 and a basis to James Corporation of $800,000. The Land was acquired by James Corporation in a Section 351 Transfer two (2) years ago from Lee when its Fair Market Value was $500,000. (Assume that there was no business purpose for the transfer). Pursuant to the Complete Liquidation, the Land is sold to an unrelated third party for $100,000 and the $100,000 proceeds of the sale are distributed proportionately (pro-rata) to John and Lee (ie. Eighty percent (80%) to John and twenty percent (20%) to Lee). The Recognized Loss to James Corporation is

1. $500,000

2. $0

3. $700,000

4. $400,000