Candy Corp. is a C Corporation that began operations in year 1. Candy Corp.’s year 1 through year 3 taxable earnings and profits (E & P) are as follows:

Year ......................................... E & P
1 ........................................ ($25,000)
2 .............................................. 5,000
3 ........................................... 10,000

On the last day of year 3, Candy Corp. makes a $12,500 cash shareholder distribution, distributed equally among its two shareholders, Goode and Plenteau. How much of Goode’s distribution is a nontaxable return of capital? Assume sufficient basis in Goode’s stock investment.

a. $5,000

b. $0

c. $1,250

d. $6,250