Virginia Corporation is a calendar year corporation. At the beginning of 2014, its election to be taxed as an S corporation became effective. Virginia Corp.'s balance sheet at the end of 2013 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 2014, Virginia 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 2014, Virginia 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 (a) except Virginia had a net operating loss carryover of $24,000 from its time as a C corporation.
c. Assume that same facts as (a) except that if Virginia were a C corporation, its taxable income would have been $1,500.