Clarence Corporation has one hundred (100) shares of stock outstanding which are owned by Shirley and Deidra who are unrelated. Shirley owns forty (40) shares of the stock and Deidra owns sixty (60) shares of the stock. Clarence Corporation redeems twelve (12) of Shirleys shares of stock for $800 per share. Shirley paid $200 per share for her stock three (3) years ago. Assuming Clarence Corporation has significant Earning And Profit (E&P), which of the following is correct regarding the Stock Redemption?

1. Shirley has a Long-Term Capital Gain of $2,400
2. Shirley has Dividend Income o $7,200
3. Shirley has a Long-Term Capital Gain of $7,200
4. Shirley has a Long-Term Capital Gain of $4,800