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Case IV S Corporations: Built-in Gains Tax 1. Riverside Corporation was organized on January 1, 2012. On February 15, 2014, it elected S status

S Corporations: Built-in Gains Tax

1.Riverside Corporation was organized on January 1, 2012. On February 15, 2014, it elected S status effective for calendar year 2014. On January 1, 2014 Riverside Corporation only had one asset: land worth $1,000,000 and a basis of $500,000.The land was sold in November 2014 for $1,200,000. Riverside's 2014 taxable income was $300,000, not including the gain on sale of land.

a. How much is Riverside's built-in gains tax?

b. How much income is subject to tax on the shareholders' returns?


2. Corporation X makes an S election. In its first year as an S corporation, it recognizes $500,000 of built-in gains, but overall has a $200,000 taxable loss. In the second year, X has taxable income of $200,000.


Corporation Y recognizes $500,000 of built-in gain, but breaks even from operations in each of the first two years (X and Y are economically in the same position at the end of the two- year period).


a. How much built-in gains tax is paid in the first year by X? Second year?

b. How much built-in gains tax does Y pay in the first year? Second year? What planning point do you see?

Case IV S Corporations: Built-in Gains Tax 1. Riverside Corporation was organized on January 1, 2012. On February 15, 2014, it elected S status effective for calendar year 2014. On January 1, 2014 Riverside Corporation only had one asset: land worth $1,000,000 and a basis of $500,000. The land was sold in November 2014 for $1,200,000. Riverside's 2014 taxable income was $300,000, not including the gain on sale of land. a. How much is Riverside's built-in gains tax? b. How much income is subject to tax on the shareholders' returns? 2. Corporation X makes an S election. In its first year as an S corporation, it recognizes $500,000 of built-in gains, but overall has a $200,000 taxable loss. In the second year, X has taxable income of $200,000. Corporation Y recognizes $500,000 of built-in gain, but breaks even from operations in each of the first two years (X and Y are economically in the same position at the end of the two- year period). a. How much built-in gains tax is paid in the first year by X? Second year? b. How much built-in gains tax does Y pay in the first year? Second year? What planning point do you see?
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Question on1.docx

Question one
a) Fair value of land
Tax basis
Built in gains
Corporate gains tax
Built in tax gains 1,200,000
500,000
700,000
35%
$245,000 b) Taxable income
$300,000
Add: taxable gain to...

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