Seven years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 2,000 shares of Blue Corporation in a transaction that qualified under 351. The assets had a tax basis to her of $400,000 and a fair market value of $700,000 on the date of the transfer. In the current year, Blue Corporation (E & P of $1 million) redeems 600 shares from Eleanor for $260,000 in a transaction that qualifies for sale or exchange treatment.

With respect to the redemption, Eleanor will have a:

a. $140,000 dividend.

b. $260,000 dividend.

c. $140,000 capital gain.

d. $260,000 capital gain.

e. None of these.