SEC Corporation Has Been Operating as a C Corporation Since

question 10

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 $10,000. 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 2013). 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 2013, its taxable income would have been $40,000. How much built-in gains tax must SEC pay in 2014?

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Definitions:

On-the-job Training

A hands-on method of teaching the skills, knowledge, and competencies needed for employees to perform a specific job within the workplace.

Mentoring

A relationship in which a more experienced or knowledgeable person helps to guide a less experienced or knowledgeable person.

Job Rotation

A strategic human resources technique involving moving employees through a variety of jobs at the same company to increase their knowledge and skills.

Performance Aid

Tools or resources used to improve or facilitate the performance of tasks, ranging from written guides to software applications.