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

¹ This was calculated using the allowance method. Using specific write-off, this would have been $50,000.

² 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.

³ 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? (10 points)

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