During the current year, Gnatcatcher, Inc., (E & P of $1 million) distributed $200,000 each to Brandi and Yuen in redemption of some of their Gnatcatcher stock. The two shareholders acquired their shares five years ago. Each shareholder is in the 33% tax bracket, and each had a $45,000 basis in her redeemed stock.
a. Assume the distribution to Brandi is a qualifying stock redemption. Determine Brandi's tax liability on the distribution.
b. Assume the distribution to Yuen is a nonqualified stock redemption. Determine Yuen's tax liability on the distribution.