The corporate-level tax on recognized built-in gains applies when an S corporation disposes of an asset in a taxable disposition within five years after the date on which the S election took effect.

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The corporate-level tax on recognized built-in gains applies to S corporations that dispose of assets within five years after converting from a C corporation to an S corporation, if those assets had appreciated in value while the corporation was still a C corporation. This tax is intended to prevent corporations from avoiding corporate-level taxes on appreciated assets by converting to S corporation status before selling those assets.

The Corporate-Level Tax on Recognized Built-In Gains Applies When an S