Julian, Berta, and Maria Own 400 Shares, 400 Shares, and 200

Multiple Choice

Julian, Berta, and Maria own 400 shares, 400 shares, and 200 shares, respectively, in Caramel Corporation (E & P of $750,000) . Berta is Julian's sister, and Maria is Julian's aunt. Caramel Corporation redeems all of Julian's stock for $420,000. Julian paid $200 a share for the stock five years ago. Julian continued to serve on Caramel's board of directors after the redemption. With respect to the redemption:

A) Dividend income of $420,000.
B) Long-term capital gain of $420,000.
C) Dividend income of $340,000.
D) Long-term capital gain of $340,000.
E) None of the above.