Virginia Corporation is a calendar-year corporation. At the beginning of 2020, its election to be taxed as

Question:

Virginia Corporation is a calendar-year corporation. At the beginning of 2020, its election to be taxed as an S corporation became effective. Virginia Corp.’s balance sheet at the end of 2019 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation).

Asset

Adjusted basis

FMV

Cash

$20,000

$20,000

Accounts receivable

40,000

40,000

Inventory

90,000

200,000

Land

150,000

175,000

 Totals

$300,000

$435,000


In 2020, Virginia Corp. reported business income of $50,000 (this would have been its taxable income if it were still a C corporation). What is Virginia’s built-in gains tax in each of the following alternative scenarios?

a. During 2020, Virginia Corp. sold inventory it owned at the beginning of the year for $100,000. The basis of the inventory sold was $55,000.

b. Assume the same facts as part (a), except Virginia Corp. had a net operating loss carryover of $24,000 from its time as a C corporation.

c. Assume that same facts as part (a), except that if Virginia Corp. were a C corporation, its taxable income would have been $1,500.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Taxation Of Individuals And Business Entities 2021

ISBN: 9781260247138

12th Edition

Authors: Brian Spilker, Benjamin Ayers, John Barrick, Troy Lewis, John Robinson, Connie Weaver, Ronald Worsham

Question Posted: