On January 1, 2019, C Corporation (a calendar year taxpayer) has E&P of $30,000. Its Current year E&P is ($3,600). On December 31, 2019, the corporation distributes $40,000 to its sole shareholder, Jimmy. Jimmy had purchased his stock in C Corporation for $7,500, 4-years ago.

Required:

a. How is the Distribution characterized by the Corporation

b. How much of the distribution must W report as Capital Gains on his tax return