Which of the Following Is an Incorrect Statement Regarding the Tax

Which of the following is an incorrect statement regarding the tax consequences of a § 306 stock sale?

A) No loss is recognized on the sale.
B) The shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date of the stock dividend.
C) Any ordinary income recognized by the shareholder qualifies for the 15% (or 0%) maximum tax rate that applies to dividend income.
D) The issuing corporation reduces its E & P by the amount of sales proceeds.
E) None of the above.