Longhorn Company reports current E&P of $110,000 in 20X3 and accumulated E&P at the beginning of the year of negative $220,000. Longhorn distributed $330,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in his stock in Longhorn is $110,000. How is the distribution treated by the shareholder in 20X3?

Multiple Choice

• $110,000 dividend.

• $110,000 dividend, $110,000 tax-free return of basis, and $110,000 capital gain.

• $110,000 dividend and $220,000 tax-free return of basis.

• $0 dividend, $110,000 tax-free return of basis, and $220,000 capital gain.