SEC Corporation Has Been Operating as a C Corporation Since

question 48

Essay

SEC Corporation has been operating as a C corporation since 2013. It elected to become an S corporation, effective January 1, 2016. On December 31, 2015, SEC reported a net unrealized built in gain of $60,000. In addition to other transactions in 2016, SEC sold inventory it owned at the beginning of 2016 (it did not sell any other assets it owned at the beginning of 2016). 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 2016, its taxable income would have been $100,000. How much built-in gains tax must SEC pay in 2016?

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Definitions:

Organizational Hierarchy

The arrangement of an organization's roles and responsibilities in a graded structure of authority and leadership.

Transactions

The act of conducting business, which could involve buying, selling, or exchanging goods and services.

Stakeholders

Individuals or groups that have an interest or concern in an organization and can affect or be affected by the business's actions, objectives, and policies.