Puce Corporation, an accrual basis taxpayer, has struggled to survive since its formation, six years ago. As aresult, it has a deficit in accumulated E & P at the beginning of the year of $340,000. This year, however, Puceearned a significant profit; taxable income was $240,000. Consequently, Puce made two cash distributions toMartha, its sole shareholder: $150,000 on July 1 and $200,000 December 31. The following information mightbe relevant to determining the tax treatment of the distributions.

1) This years taxable income included a net operating loss carryover of $50,000.

2) The corporations Federal income tax liability is $72,000 for the year.

3) Puce paid nondeductible fines and kickbacks of $10,000. The company also paid nondeductible life insurance premiums of $22,000.

4) The cash surrender value of the corporate-owned life insurance policies increased by $11,000 during the year.

5) The company sold a piece of equipment during the year and reported a 1231 gain of $105,000 and recapture income under 1245 of$35,000. There were no other 1231 transactions during the year, but the corporation did have a capital loss carryforward of $30,000.

6) MACRS depreciation exceeds E & P depreciation by $14,000. In addition, an election under 179 was made this year for $18,000 of assets.

a.Compute Puces E & P for the year.

b.What are the tax consequences of the two distributions made during the year to Martha (her stock basis is $74,000)?

state the IRC for each.