At the end of the year, before distributions, Bombay (an S corporation) has an accumulated adjustments account balance of $17,400 and accumulated E&P of $23,000 from a previous year as a C corporation. During the year, Nicolette (a 40 percent shareholder) received a $23,000 distribution (the remaining shareholders received $34,500 in distributions). Assume her stock basis is $46,000 after considering her share of Bombays income for the year but before considering the effects of the distribution.

Required:

1. What is the amount and character of gain Nicolette must recognize from the distribution?