McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 61

Virginia Corporation is a calendar-year corporation. At the beginning of 2011, its election to be taxed as an S corporation became effective. Virginia Corp.'s balance sheet at the end of 2010 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation).

In 2011, 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 2010, 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 the same facts as (a), except that if Virginia were a C corporation, its taxable income would have been $1,500.