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:

Psychology

The scientific study of the mind and behavior, encompassing various aspects of human experience, cognition, and emotion.

Empirical Claims

Claims that can be true or false depending on the facts.

Prove

To demonstrate the truth or existence of something through evidence or argument.

Confirmation Bias

The tendency to search for, interpret, and remember information in a way that confirms one's preconceptions.