John Corporation was organized ten (10) years ago as a retail Sporting Goods operation. Eight (8) years ago, John Corporation began to operate a separate Oil Refining division. Due to a slow down in the oil business, John Corporation discontinues the Oil Refining division. John Corporation sells the assets of the Oil Refining division for $6,400,000 and distributes the proceeds equally to its two (2) shareholders, Naomi, an individual, and Willie Corporation. Both Naomi and Willie Corporation have a basis is the redeemed stock of $800,000 each which both acquired ten (10) years ago. John Corporation continues to operate the retail Sporting Goods operation. John Corporation has Earnings And Profits (E&P) of $6,000,000 at the time of the distribution. As a result of the distribution, which of the following is the correct tax treatment for Willie Corporation?

1. Willie Corporation has Dividend income of $1,120,000
2. Willie Corporation has Dividend income of $2,400,000
3. Willie Corporation has a Long-Term Capital Gain of $3,200,000
4. Willie Corporation has a Long-Term Capital Gain of $2,400,000