Red Corporation has 1,000 shares of stock outstanding and is owned equally by the following individuals:

Al200 shares

Bob200 shares

Carl200 shares

Cindy (Carl's wife)200 shares

Dawn200 shares

Red has E&P of $2,500,000

Red redeems Carl's 200 shares for $1,000,000 cash; Carl's basis in the stock is $300,000

Carl will stay on the Board of Directors after the redemption

Determine the tax consequences to Carl and Red