1. Legend Corporation (C-corp) has accumulated earnings and profits on January 1, 2018 of $115,000. On December 31, 2018 when its current earnings and profits are negative $40,000 Legend makes $85,000 cash distribution each to its two shareholders on December 31. The shareholders are Will (owns 50%) and Shepard Corporation (owns 50%). Shepard Corporation is also a C-corporation. Wills stock basis is $25,000 and Shepards stock basis is $50,000.

1. What are the consequences to Will and Shepard Corp for the distribution?
2. How would your answer change in part a, if instead the accumulated earnings and profits were positive $45,000?