25. LO.1, 2, 3, 4 Cerulean Corporation has two equal shareholders, Marco and Avery.

Marco acquired his Cerulean stock three years ago by transferring property worth $700,000, basis of $300,000, for 70 shares of the stock. Avery acquired 70 shares in Cerulean Corporation two years ago by transferring property worth $660,000, basis of $110,000. Cerulean’s accumulated E & P as of January 1 of the current year is $350,000.

On March 1 of the current year, the corporation distributed to Marco property worth $120,000, basis to Cerulean of $50,000. It distributed cash of $220,000 to Avery. On July 1 of the current year, Avery sold her stock to Harpreet for $820,000.

On December 1 of the current year, Cerulean distributed cash of $90,000 each to Harpreet and Marco. What are the tax issues?