Monteleon, Inc. reports positive current E&P in 2014 and positive accumulated E&P at the beginning of the year of $!0,000. St. Clair Company distributed $350,000 to its shareholder, Cindy Slade on June 30, 2014 and $350,000 to Donny Smith on December 31, 2014. Cindy's tax basis in her stock is $60,000 and Donny's tax basis is $150,000. Cindy and Donny each own 50% of the company. Please show your work and explain your answer.

(a) Describe the income tax treatment of these distributions to the shareholders.

(b) What is each shareholder's basis in stock after the distribution?