ExpertHard1 markMultiple Choice
CPA · Question 50 · Area III: Entity Tax Planning
An S Corporation (formerly C Corp) sells an asset in Year 2 for a $50,000 gain. At the time of S election (Year 1), the asset had a built-in gain of $30,000. The S Corp's taxable income for Year 2 (calculated as if C Corp) is $20,000. What is the Built-in Gains (BIG) Tax base?
An S Corporation (formerly C Corp) sells an asset in Year 2 for a $50,000 gain. At the time of S election (Year 1), the asset had a built-in gain of $30,000. The S Corp's taxable income for Year 2 (calculated as if C Corp) is $20,000. What is the Built-in Gains (BIG) Tax base?
Answer options:
A.
$50,000
B.
$30,000
C.
$20,000
D.
$0
How to approach this question
BIG Tax Base is the LEAST of: 1. Recognized Gain ($50k). 2. Original Built-in Gain ($30k). 3. Taxable Income ($20k). Answer: $20,000.
Full Answer
C.$20,000✓ Correct
IRC §1374. The tax is applied to the lesser of the recognized built-in gain ($30,000) or the taxable income limitation ($20,000).
Common mistakes
Ignoring the taxable income limitation.
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