MDC Corporation which has an E & P deficit of $170,000 merges with AIM Corporation which has a positive E & P of $330,000. The merger occurs on March 31. On October 31, AIM distributes $200,000 to the shareholders. There is no current E&P. How is the distribution taxed to the shareholders?

a. $200,000 taxed as a dividend. b. $170,000 taxed as a dividend and $30,000 treated as return of capital. c. $160,000 taxed as a dividend and $40,000 treated as return of capital. d. $30,000 taxed as a dividend and $170,000 treated as return of capital.

Pursuant to a plan of corporate reorganization adopted in the current year, Nick exchanged 2,000 shares of MPC Corporation common stock which he had purchased for $400,000 for 2,400 shares of AIM Corporation common stock that have a fair market value of $800,000. As a result of the exchange, Nick's recognized gain and his basis in the AIM stock are:

a. No recognized gain and basis of $400,000. b. No recognized gain and basis of $800,000. c. Recognized gain of $200,000 and basis of $800,000. d. Recognized gain of $400,000 and basis of $400,000.

Karen owns all the stock in MDC Corporation. Karen has a basis of $300,000 in the MDC stock, which currently has a fair market value of $700,000. MDC is merged into AIM Corporation. Karen receives AIM preferred stock worth $300,000 and common stock worth $400,000. Karen recognizes a gain of:

$700,000.

$400,000.

$300,000.

$0.