Ballou Corporation distributes $200,000 in cash to its shareholders during the current year. Accumulated earnings and profits at the beginning of the year are $45,000, and current year earnings and profits are $105,000. Buddy owns 80% of Ballou and has a basis of $60,000 at the beginning of the year.
Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.