Clampett, Inc., converted to an S corporation on January 1, 2019.At that time, Clampett, Inc., had cash ($40,000), inventory (FMV $60,000, basis $30,000), accounts receivable (FMV $40,000, basis $40,000), and equipment (FMV $60,000, basis $80,000).In 2020, Clampett, Inc., sells its entire inventory for $60,000 (basis $30,000).Assume the corporate tax rate is 21 percent and that Clampett, Inc., had a $20,000 net operating loss carryover from its prior C corporation years.How much built-in gains tax does Clampett, Inc., pay in 2020?

Question

Quizplus · Accepted Answer

Since Clampett, Inc. had a $20,000 net operating loss carryover from its C corporation years, it can use this loss to offset the $30,000 gain from the sale of inventory in 2020, resulting in no built-in gains tax liability.