1. Acme, a C corporation, has $32,000 in E&P. It makes a cash distribution to its only shareholder of $75,000. The shareholders basis in the stock before the distribution is $17,000. How much income, and what character, does the shareholder have?

		$58,000 dividend income and $17,000 return of capital.
		$32,000 dividend income, $17,000 nontaxable return of capital, and $26,000 capital gain.
		$75,000 dividend income.
		No taxable income.

2. Which of the following is false regarding the U.S. tax system?

		The income tax system is progressive tax system.
		The marginal tax rate is the highest tax bracket a taxpayer reached in a given year.
		Capital gains are always taxed at 15%.
		The sales tax is a proportional tax.