Sienna Corporation Which Has an E & P Deficit of $340,000

Sienna Corporation which has an E & P deficit of $340,000 merges with Indigo Corporation which has a positive E & P of $660,000.The merger occurs on March 31.On October 31, Indigo distributes $400,000 to the shareholders.There is no current E&P.How is the distribution taxed to the shareholders?

A) $400,000 taxed as a dividend.
B) $340,000 taxed as a dividend and $60,000 treated as return of capital.
C) $320,000 taxed as a dividend and $80,000 treated as return of capital.
D) $60,000 taxed as a dividend and $340,000 treated as return of capital.
E) None of the above.