3. On 4/15/X2, Frank and seven individuals formed R corporation and each received the following number of shares of R co. voting stock:

Franks Father 6,000

Franks Mother 3,000

Frank 4,000

Franks Sister 2,500

Franks Grandfather 4,000

Franks Cousin 500

Franks Wife 2,000

Franks Unrelated Friend Joe 5,500

On 10/16/X7 R co. redeemed 1000 of Franks shares for $3000, 5000 of his fathers shares, 2000 of his mothers shares and 2000 of Joes shares. Franks basis in the redeemed shares was $2500.

a. Determine how Frank will characterize the $3,000 distribution from R co.

b. Determine how Frank will characterize the $3,000 distribution from R co., if instead R co. had redeemed 1000 of Franks shares, 3000 of his fathers shares, 2000 of his wifes shares and 3000 of Joes shares.