MCGRAW HILL TAXATION OF
INDIVIDUALS 16TH EDITION SPILKER
EXAM SCRIPT 2026 COMPLETE QUESTIONS
AND CORRECT ANSWERS
◉ The nondeductibility of the distribution to the shareholder, creates
______________________________ of the corporation's income, first
at the corporate level and then at the shareholder level. Answer: double
taxation
◉ The corporate tax rate is significantly ______________ than the
maximum individual tax rate. Answer: lower
◉ When a corporation distributes property to shareholders in their
capacity as shareholders, the shareholders will characterize the
distribution as either _________________________________ or a
__________________________________. Answer: dividend income ;
return of capital
◉ Shareholders include the portion characterized as
_______________________________________ in their gross income.
In contrast, a return of capital is considered not income, but rather a
____________________________________ in the shareholder's tax
basis in their stock. Answer: dividend income ; reduction
, ◉ If the return of capital ____________________ the tax basis in the
stock, then the excess distribution is taxed as a
_________________________ from the sale of the shares. Answer:
exceeds ; capital gain
◉ Corporate distributions of "property" usually take the form of cash,
but distributions can also consist of other tangible or intangible property.
Special rules apply when a corporation distributes its own stock, in the
form of __________________________________________, to its
shareholders. Answer: stock dividends
◉ A _____________________________ is any distribution of property
made by a corporation to its shareholders out of its earnings and profits
account. Answer: dividend
◉ Corporations must keep two separate E&P accounts: one for the
current year, called
__________________________________________________________
__, and one for undistributed earnings and profits accumulated in all
prior years, called
__________________________________________________________
__________________. Answer: current earnings and profits ;
accumulated earnings and profits.
◉ A year-to-year calculation maintained by a corporation to determine if
a distribution is a dividend. Earnings and profits are computed for the
current year by adjusting taxable income to make it more closely
resemble economic income. Answer: current earnings and profits
INDIVIDUALS 16TH EDITION SPILKER
EXAM SCRIPT 2026 COMPLETE QUESTIONS
AND CORRECT ANSWERS
◉ The nondeductibility of the distribution to the shareholder, creates
______________________________ of the corporation's income, first
at the corporate level and then at the shareholder level. Answer: double
taxation
◉ The corporate tax rate is significantly ______________ than the
maximum individual tax rate. Answer: lower
◉ When a corporation distributes property to shareholders in their
capacity as shareholders, the shareholders will characterize the
distribution as either _________________________________ or a
__________________________________. Answer: dividend income ;
return of capital
◉ Shareholders include the portion characterized as
_______________________________________ in their gross income.
In contrast, a return of capital is considered not income, but rather a
____________________________________ in the shareholder's tax
basis in their stock. Answer: dividend income ; reduction
, ◉ If the return of capital ____________________ the tax basis in the
stock, then the excess distribution is taxed as a
_________________________ from the sale of the shares. Answer:
exceeds ; capital gain
◉ Corporate distributions of "property" usually take the form of cash,
but distributions can also consist of other tangible or intangible property.
Special rules apply when a corporation distributes its own stock, in the
form of __________________________________________, to its
shareholders. Answer: stock dividends
◉ A _____________________________ is any distribution of property
made by a corporation to its shareholders out of its earnings and profits
account. Answer: dividend
◉ Corporations must keep two separate E&P accounts: one for the
current year, called
__________________________________________________________
__, and one for undistributed earnings and profits accumulated in all
prior years, called
__________________________________________________________
__________________. Answer: current earnings and profits ;
accumulated earnings and profits.
◉ A year-to-year calculation maintained by a corporation to determine if
a distribution is a dividend. Earnings and profits are computed for the
current year by adjusting taxable income to make it more closely
resemble economic income. Answer: current earnings and profits
