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

The built-in gains tax applies to S corporations that were previously C corporations and have appreciated assets at the time of conversion. To avoid this tax, the corporation must wait 5 years after electing S corporation status before selling the appreciated asset.

Empire Corporation Has Operated as a C Corporation for Its