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 10

Until the end of year 0, Magic Carpets (MC) was a C corporation with a calendar year. At the beginning of year 1 it elected to be taxed as an S corporation. MC uses the LIFO method to value its inventory. At the end of year 0, under the LIFO method, its inventory of rugs was valued at $150,000. Under the FIFO method, the rugs would have been valued at $170,000. How much LIFO recapture tax must MC pay, and what is the due date of the first payment under the following alternative scenarios
a. Magic Carpets' regular taxable income in year 0 was $65,000.
b. Magic Carpets' regular taxable income in year 0 was $200,000.