3. Ridge Corp., a calendar year C corporation, made a nonliquidating cash distribution to its shareholders of $1,000,000 with respect to its stock. At that time, Ridge’s current and accumulated earnings and profits totaled $750,000 and its total paid-in capital for tax purposes was $10,000,000. Ridge had no corporate shareholders.

Ridge’s cash distribution:

I. Was taxable as $750,000 in dividend income to its shareholders.

II. Reduced its shareholders’ adjusted bases in Ridge stock by $250,000.

a. I only

b. II only

c. Both I and II

d. Neither I nor II