Rourke Enterprises is owned by Dallas. For the year, Rourke had net income per books of $450,000. This included the following items:

            Federal income tax expense $125,000

            Bad Debt Expense¹                      $80,000

            Rent                                        $50,000

            Meals                                       $45,000

            Depreciation expense²                $105,000

            Dividends³                                       $50,000

This was calculated using the allowance method. Using specific write-off, this would have been $50,000.

Sum-of-the-years-digits method was used for book purposes. Had MACRS been used, depreciation expense would have been $125,000. Had straight-line been used, depreciation would have been $95,000.

These dividends were from Mavis, Inc. Rourke owns 75% of Mavis.    

During the year, Rourke pays Dallas distribution of $500,000. Dallas has a basis of $600,000 in her stock.

1. What are the tax consequences of the distribution to Dallas? 

2. What basis will Dallas take in her stock after the distribution?