Wolverine Corporation made a distribution of $500,000 to Rich Rod, Inc. in partial liquidation of the company on December 31 of this year. Rich Rod, Inc. owns 100% of Wolverine Corporation. The distribution was in exchange for 50% of Rich Rod, Inc.’s stock in the company. At the time of the distribution, the shares had a fair market value of $200 per share. Rich Rod, Inc.’s income tax basis in the shares was $50 per share. Wolverine had total E&P of $8,000,000 at the time of the distribution.

a. What is the total amount and character (capital gain or dividend) of any income or gain recognized by Rich Rod, Inc. as a result of the partial liquidation?

b. Assuming Wolverine made no other distributions to Rich Rod, Inc. during the year, by what amount does Wolverine reduce its total E&P as a result of the partial liquidation?