Apple,Inc.,a cash basis S corporation in Orange,Texas,formerly was a C corporation.Apple has the following assets and liabilities on January 1,2008,the date the S election is made.

During 2008,Apple collects the accounts receivable and pays the accounts payable.The land is sold for $3 million,and taxable income for the year is $590,000.What is Apple's built-in gains tax?

Question

Apple,Inc.,a cash basis S corporation in Orange,Texas,formerly was a C corporation.Apple has the following assets and liabilities on January 1,2008,the date the S election is made.

During 2008,Apple collects the accounts receivable and pays the accounts payable.The land is sold for $3 million,and taxable income for the year is $590,000.What is Apple's built-in gains tax?

Quizplus · Accepted Answer

$206,500.The net unrealized built-in gain on the conversion date is $685,000 ($105,000 - $10,000 + $700,000 - $110,000),the maximum amount subject to the § 1374 tax.The recognized built-in gains and loss are: 11ea7f05_2e95_e20d_92e1_f7f4f9f604b6_TB4123_00 Taxable income is $590,000 and the built-in gains tax is assessed on the smaller amount ($590,000 F1F1F1S1F1F1F10 35% = $206,500).However,there is a carry forward of the built-in gains amount that escapes taxation due to the taxable income limitation,to be taxed in subsequent years when taxable income is sufficient.Therefore,$95,000 is carried into 2008 and treated as a recognized built-in gain then.

Apple,Inc,A Cash Basis S Corporation in Orange,Texas,formerly Was a C