The relationship between book income and tax income for U.S. corporations has changed over the past two decades, showing increased tax-sheltering activity. Differences in depreciation, foreign income reporting, and employee compensation have contributed to this divergence. Large companies have utilized deductions from option exercises, leading to a significant gap between book and tax income. In the late 1990s, the difference between tax and book income cannot be explained by these factors alone, suggesting increased tax sheltering. Earnings management does not fully explain the breakdown between book and tax income during this period.