Empire Corporation has operated as a C corporation for its first three years of existence because one of its shareholders disqualified it from electing S corporation status.That shareholder is now gone,and the remaining shareholders have elected S corporation status effective for the current year.Empire Corporation has one highly appreciated asset that it hopes to sell in the near future.How many years must elapse before the sale in order to avoid the built-in gains tax?

Question

Quizplus · Accepted Answer

In order to avoid the built-in gains tax, an S corporation must hold the appreciated asset for at least five years after it elects S corporation status. Since Empire Corporation has just elected S corporation status for the current year, they must wait at least five years before selling the appreciated asset to avoid the tax. Therefore, the correct answer is B) 5 years.

Empire Corporation Has Operated as a C Corporation for Its