Webster, Inc., a corporation that had been in existence since 2012, elected Subchapter S status on February 23, 2018. The election did not specify a date for the conversion from C Corp. to S Corp. status. At the time of its election Webster, Inc. had three assets. Asset #1 had been acquired in 2014 and had an adjusted basis of $500,000 and a FMV at the time of the Subchapter S election equal to $800,000. In 2015, Webster, Inc. acquired Asset #2 and Asset #3 and had adjusted basis equal to $450,000 and $700,000, respectively. The FMV of these two assets were $300,000 and $900,000 at the time of the Subchapter S election. On August 18, 2019, Webster, Inc. sold Asset #3 for $975,000.

1. Assuming that the tax rate on a C Corp. was equal to 21 percent in 2019, how much tax, if any, must Webster, Inc. pay as a result of its sale of Asset #3? Explain your answer.
2. How much gain must Anna, the sole shareholder of Webster, include in her 2019 tax return? Explain your answer.