CPA · Question 26 · Area III: Entity Tax Planning

An S Corporation was formerly a C Corporation. At the time of conversion, it had $100,000 of Net Unrealized Built-in Gains (NUBIG). In Year 3 (within the 5-year recognition period), the S Corp sells an asset with a basis of $20,000 and FMV of $50,000. The asset was held at conversion with a built-in gain of $25,000. The S Corp's taxable income for Year 3 (calculated as if it were a C Corp) is $15,000. What is the amount of Built-in Gains (BIG) Tax liability (assume 21% rate)?