Question 1

An S Corporation (formerly a C Corp) sells an asset in Year 1 for a gain of $100,000. The asset was held when the S election was made 3 years ago. At the time of election, the asset had a built-in gain of $80,000. The S Corp's taxable income for Year 1 (calculated as if it were a C Corp) is $60,000. What is the amount of Built-in Gains (BIG) tax liability (assume 21% rate)?

Accepted Answer

BIG Tax Base is the LEAST of: 1. Recognized Gain ($100k), 2. Original Built-in Gain ($80k), 3. Current Year Taxable Income ($60k). Apply tax rate to the lowest number.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Taxing the full gain or the full BIG without checking the taxable income limitation.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 2

More questions from this exam