Tracy and Lance, Equal Shareholders in Macaw Corporation, Receive $600,000

Multiple Choice

Tracy and Lance, equal shareholders in Macaw Corporation, receive $600,000 each in distributions on December 31 of the current year. Macaw's current-year taxable income is $1 million and it has no accumulated E & P. Last year, Macaw sold an appreciated asset for $1,200,000 (basis of $400,000) . Payment for one-half of the sale of the asset was made this year. How much of Tracy's distribution will be taxed as a dividend?

A) $0
B) $300,000
C) $500,000
D) $600,000
E) None of these.