LO.1,3 Black Corporation and Tom each own 50% of Tan Corporation's common stock. On January 1, Tan holds a deficit in accumulated E & P of $200,000. Its current E & P is $90,000. During the year, Tan makes cash distributions of $40,000 each to Black and Tom.

a. How are the two shareholders taxed on the distribution?

b. What is Tan's accumulated E & P at the end of the year?