Hero Co, distributed equipment having a fair market value of $300,000 and an adjusted basis of $150,000 to James in exchange for 85 percent of his interest in Hero, The distribution was under a plan of partial liquidation that resulted in a contraction of the business. James's adjusted basis in the stock exchanged was $180,000.

Hero's earnings and profits were $500,000 prior to the distribution. What is the character and amount of James's recognized gain on the distribution?

a. $120,000 capital gain

b. $150,000 capital gain

c. $150,000 capital loss

d. $300,000 dividend income

e. None oft he above