SEC Corporation Has Been Operating as a C Corporation Since

question 51

Essay

SEC Corporation has been operating as a C corporation since 2015. It elected to become an S corporation, effective January 1, 2018. On December 31, 2017, SEC reported a net unrealized built in gain of $10,000. In addition to other transactions in 2018, SEC sold inventory it owned at the beginning of 2018 (it did not sell any other assets it owned at the beginning of 2018). 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 2018, its taxable income would have been $40,000. How much built-in gains tax must SEC pay in 2018? Assume the corporate tax rate is 21%.

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Definitions:

Incentive Theories

Incentive theories suggest that behavior is motivated by a desire for external rewards or incentives.

Drive Theories

Theories suggesting that behavior is motivated by the desire to reduce internal tension caused by unmet biological needs.

Social Motives

The psychological forces that drive individuals to interact, affiliate, or connect with others.

Evolutionary Perspective

A way of looking at human behavior and mental processes by examining them in terms of evolutionary principles or natural selection.