SEC Corporation Has Been Operating as a C Corporation Since

question 21

Essay

SEC Corporation has been operating as a C corporation since 2011. It elected to become an S corporation, effective January 1, 2014. On December 31, 2013, SEC reported a net unrealized built in gain of $60,000. In addition to other transactions in 2014, SEC sold inventory it owned at the beginning of 2014 (it did not sell any other assets it owned at the beginning of 2014). At the beginning of the year, the inventory it sold had a fair market value of $30,000 and a FIFO tax basis of $10,000. SEC sold the inventory for $35,000. If SEC had been a C corporation in 2014, its taxable income would have been $100,000. How much built-in gains tax must SEC pay in 2014?

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Definitions:

Assistant

A person who supports others, typically in administrative tasks, to help them be more efficient in their roles.

SEC (Securities and Exchange Commission)

The regulatory authority tasked with overseeing the securities industry, enforcing legal compliance, and protecting investors.

Conflict of Interest

A conflict of interest occurs when an individual's personal interests potentially interfere with their professional responsibilities, leading to biased decisions.