XYZ Corporation, an accrual basis taxpayer, has struggled to survive since its formation, six years ago. As a result, it has a deficit in accumulated E & P at the beginning of the year of $390,000. This year, however, XYZ earned a significant profit; taxable income was $275,000. Consequently, XYZ made a cash distribution of $310,000 to Lucy. its sole shareholder on December 31. The following information might be relevant to determining the tax treatment of the distributions. This year's taxable income included a net operating loss carryover of $40,000. The corporation's Federal income tax liability is $87,000 for the year. XYZ paid nondeductible fines and kickbacks of $12,000. The company also paid nondeductible life insurance premiums of $18,000. The company had a charitable contribution carryover from last year of $10,000 that it was able to deduct in the current year. The company sold a piece of equipment during the year and reported a $ 1231 gain of $115,000 and recapture income under $ 1245 of $55,000. There were no other $ 1231 transactions during the year, but the corporation did have a capital loss carryforward of $40,000. MACRS depreciation exceeds E & P depreciation by $22,000. a. Compute XYZ's E&P for the year. b. What is the tax consequence of the distribution made during the year to Lucy