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 onto its assets for at least 5 years after electing S corporation status. Since Empire Corporation has just elected S corporation status, it must hold onto its highly appreciated asset for at least 5 years before selling it to avoid the built-in gains tax.

Empire Corporation Has Operated as a C Corporation for Its