SEC Corporation Has Been Operating as a C Corporation Since

question 87

Essay

SEC Corporation has been operating as a C corporation since 2016.It elected to become an S corporation, effective January 1, 2019.On December 31, 2018, SEC reported a net unrealized built-in gain of $10,000.In addition to other transactions in 2019, SEC sold inventory it owned at the beginning of 2019 (it did not sell any other assets it owned at the beginning of 2019).At the beginning of the year, the inventory it sold had a fair market value of $40,000 and a FIFO tax basis of $15,000.SEC sold the inventory for $28,000.If SEC had been a C corporation in 2019, its taxable income would have been $40,000.How much built-in gains tax must SEC pay in 2019? Assume the corporate tax rate is 21%.

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Definitions:

Salience Effect

Refers to the tendency of individuals to focus on items or information that stand out more noticeably or are more significant to them.

Depth of Processing

A theory suggesting the depth (shallow to deep) of mental processing affects memory recall; deeper processing leads to better recall.

Retroactive Interference

The phenomenon where newly learned information interferes with the recall of information learned previously.

Proactive Interference

The phenomenon where old memories interfere with the recall of new memories.