Phone, Inc., a calendar year S corporation, distributes $33,000 cash to its only shareholder, Mary, on December 31. Mary's basis in her stock before the distribution is $28,000. Before the distribution, the corporation has a balance of $8,000 in AAA and $3,000 in E&P. What is the tax treatment of this distribution to Mary?

Select one:

a. $11,000 dividend income; $22,000 tax free

b. $3,000 dividend income; $10,000 capital gains; $20,000 tax free

c. $3,000 dividend income; $2,000 capital gains; $8,000 ordinary income; $20,000 tax free

d. $3,000 dividend income; $2,000 capital gains; $28,000 tax free