Katmandu Corp. is a C corporation that began operations in Year 1. Katmandu’s Year 1 through Year 3 taxable earnings and profits are as follows:

Year	E&P
1	$	(10,000	)
2		5,000
3		10,000

On the last day of Year 3, Katmandu makes a $20,000 cash shareholder distribution, distributed equally among its two shareholders, Edgar and Allan. Assuming Edgar has sufficient basis in the Katmandu Corp. stock investment, what amount, if any, of Edgar’s distribution is a nontaxable return of capital?

Multiple Choice

• $5,000

• $0

• $7,500

• $2,500