Strap Corp. is the sole shareholder of Boot Inc. Strap does not file a consolidated return with Boot. Strap has held its Boot stock for 5 years and has a $150,000 basis in the stock. Boot has a prospective buyer, Z, that is willing to purchase all of the Boot stock, but Z is unable to pay the $500,000 price demanded by Strap, even though he believes it to be fair. Boot has $100,000 of cash on hand and ample E&P.

To overcome the above problems, the Tax Director of Strap proposed the following: Strap will cause Boot to distribute $100,000 to it as a dividend. Shortly thereafter, Strap will sell its Boot stock to Z for $400,000.

1.What are the tax consequences of this plan?

2.What if Strap were an individual rather than a corporation?