Longhorn Company reports current E&P of $170,000 in 20X3 and accumulated E&P at the beginning of the year of negative $340,000. Longhorn distributed $510,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in his stock in Longhorn is $170,000. How is the distribution treated by the shareholder in 20X3?

I came up with $170,000 dividend, $170,000 tax-free return of basis, and $170,000 capital gain. I am not feeling as confident as I could be with my answer, E&P just doesn't make as much sense to me as I would like, and I wanted to have someone take a look and see if I am correct.