In short
The built-in gains tax is a corporate-level tax on an S corporation that was formerly a C corporation, imposed when it sells assets that had unrealized gains at the date it converted, within the recognition period.
Key takeaways
- The recognition period is five years after the S election takes effect.
- It prevents C corporations from avoiding corporate tax by electing S status just before a sale.
- It is taxed at the highest corporate rate.
Where it's tested
TCP: S Corporation Compliance & Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
The built-in gains tax applies to an S corporation that: