Pronto, Inc. owns 10 percent of Slow Start, Inc., which it purchased for $7,000 and which is worth $12,000. Pronto redeems 20% of its stock from Lester Leach with its Slow Start stock. Lester has $9,000 basis in his stock and the transaction qualifies as a sale or exchange. The following tax consequences follow from the transaction, except:

A. Pronto will recognize $5,000 of capital gain from the "sale" of Slow Start stock.

B. Lester did not have to file a 10-year agreement to avoid dividend treatment.

C. Lester will recognize $3,000 of gain and will have a cost basis of $12,000 in the Slow Start stock received

D. Pronto's E&P will be reduced by 20 percent