Phyllis surrenders her annuity while it is in the accumulation phase. She paid $8,000 into the contract, and it has a value of $11,000. How will her $3,000 gain be taxed?

A) As ordinary income, spread out over the years until she reaches age 65
B) No tax is due on the gain
C) $1,500 as ordinary income and $1,500 as capital gain
D) As ordinary income in the year of surrender