Delta Corporation made an S election on January 1 of the current year. Delta had been a C corporation since its inception in 2001. The corporation has the following operating results during the current year:
Ordinary income.....................................$200,000
Long-term capital gains............................130,000
The adjusted basis and FMV of capital assets held on January 1 and sold during the current year were $200,000 and $320,000, respectively, as of the January 1 beginning of the S election period.
a. Is Delta Corporation subject to the built-in gains tax under Sec. 1374? Explain.
b. What is the corporation’s tax liability on the built-in gain (if applicable)?
c. How would your answers to Parts a and b change if Delta Corporation instead had made its S election effective January 1, 2003?