General Inertia Corporation Made a Distribution of $50,000 to Henry

Multiple Choice

General Inertia Corporation made a distribution of $50,000 to Henry Tiara in partial liquidation of the company on December 31,year 1.Henry owns 500 shares (50%) of General Inertia.The distribution was in exchange for 250 shares of Henry's stock in the company.After the partial liquidation,Henry continued to own 50% of the remaining stock in General Inertia.At the time of the distribution,the shares had a fair market value of $200 per share.Henry's income tax basis in the shares was $100 per share.General Inertia had total E&P of $800,000 at the time of the distribution.What are the tax consequences to Henry as a result of the transaction?

A) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $100 per share.
B) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $100 per share.
C) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $200 per share.
D) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $200 per share.