An S corporation has a recognized built-in gain of $250,000 and taxable income of $150,000 determined using C corporation rules.It holds a $50,000 net operating loss carryforward from a C corporation year.There are no earnings and profits from C corporation years.The built-in gains tax liability is:

Question

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The built-in gains tax is calculated at the highest corporate tax rate of 21% on the lesser of the recognized built-in gain ($250,000) or the taxable income ($150,000) without considering the net operating loss carryforward. Therefore, the tax is 21% of $150,000, which equals $31,500. However, the answer choice closest to this calculation is $35,000, which suggests rounding or additional considerations not specified in the problem.

An S Corporation Has a Recognized Built-In Gain of $250,000