Bingo Inc. makes a distribution of $500,000 cash to its sole shareholder, Bluey Heeler, on July 1. The corporation's E&P for the year was as follows:
Current E&P: $150,000
Accumulated E&P: $(300,000)
Bluey's tax basis in the corporation before the distribution was $150,000. She has held the stock for longer than 1 year.
(a) How much, if any, of the distribution is treated as a dividend?
(b) How much, if any, is treated as a capital gain?
(c) How much tax does Bluey pay on the return of capital? Assume Bluey is in the highest marginal tax bracket for this investment income.