Question 1

An S Corporation (formerly C Corp) sells an asset in Year 2 for a $50,000 gain. At the time of S election (Year 1), the asset had a built-in gain of $30,000. The S Corp's taxable income for Year 2 (calculated as if C Corp) is $20,000. What is the Built-in Gains (BIG) Tax base?

Accepted Answer

BIG Tax Base is the LEAST of: 1. Recognized Gain ($50k). 2. Original Built-in Gain ($30k). 3. Taxable Income ($20k). Answer: $20,000.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Ignoring the taxable income limitation.

An S Corporation (formerly C Corp) sells an asset in Year 2 for a $50,000 gain. At the time of S election (Year 1), the asset had a built-in gain of $30,000. The S Corp's taxable income for Year 2 (calculated as if C Corp) is $20,000. What is the Built-in Gains (BIG) Tax base?

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Full Answer

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