Tempe Corporation is a calendar-year corporation. At the beginning of 2019, its election to be taxed as an S corporation became effective. Tempe Corp.’s balance sheet at the end of 2018 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation):

Tempe Corp.’s business income for the year was $40,000 (this would have been its taxable income if it were a C corporation).

a. During 2019, Tempe Corp. sold all of the inventory it owned at the beginning of the year for $210,000.
What is its built-in gains tax in 2019?

b. Assume the same facts as in part (a), except that if Tempe Corp. were a C corporation, its taxable income would have been $7,000. What is its built-in gains tax in 2019?

c. Assume the original facts except the land was valued at $140,000 instead of $120,000. What is Tempe Corp.’s built-in gains tax in 2019?

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Asset Adjusted Basis Cash Accounts $ 20,000 FMV $ 20,000 40,000 40,000 receivable Inventory 160,000 200,000 Land 150,000 120,000 Totals $370,000 $380,000