Q: Assume a C corporation distributes all of its after-tax earnings. Compare the tax treatment of long-term capital gains, tax-exempt interest, and operating profits if earned by a C corporation with the tax treatment of these items if earned by a sole proprietorship.

A: In the sole proprietorship case, long-term capital gains are taxed once at the individuals preferential capital gains tax rate, taxexempt income is excluded from gross income, and operating profits are taxed once at the individuals ordinary tax rate. In the C corporation case, long-term capital gain is taxed once at the corporations ordinary tax rate and again at the shareholders applicable capital gains tax rate when distributed as a dividend. Tax-exempt income is excluded from the corporations gross income but is taxed at the shareholders ordinary tax rate when distributed as a dividend. Operating profits are taxed once at the corporations ordinary tax rate and again at the shareholders capital gain tax rate when distributed as a dividend.

Please explain the answer to me. Thank you