On 8/16/X4, Steve and seven individuals formed Z Corporation and each received the following number of shares of Z co. voting stock:

   Steve's Father  4,000

  Steve's Mother  3,000

  Steve  2,000

  Steve's Sister  3,000

  Steve's Grandfather  4,000

  Steve's Cousin              500

  Steve's Wife  1,000

  Steve's Unrelated Friend Joe  2,500

On 9/18/X8 Z co. redeemed 500 of Steve's shares for $1,500, 2,000 of his father's shares, 2,000 of his mother's shares and 500 of Joe's shares. Steve's basis in the redeemed shares was $800.

a.   Determine how Steve will characterize the $1,500 distribution from Z co.

b.   Determine how Steve will characterize the $1,500 distribution from Z co., if instead Z co. had redeemed 500 of Steve's shares, 2,000 of his father's shares, 500 of his wife's shares and 1,000 of Joe's shares.