Woods Corporation Has Operated as a C Corporation for the Last

Essay

Woods Corporation has operated as a C corporation for the last seven years. The corporation has assets with a $500,000 adjusted basis and a $700,000 FMV. Liabilities are $200,000. Wolf Woods, a calendar-year taxpayer, owns all of the Woods Corporation stock. The corporation has a June 30 year-end and uses the accrual method of accounting. In order to reduce his total combined corporate and personal federal income tax liability, Wolf's CPA has told him to convert the corporation to S corporation status. Wolf would like to complete the conversion on the last day of the corporation's tax year. What tax issues should Wolf and his CPA consider with respect to the S election?