S Corporations: Built-in Gain Tax 2024

Overview

When an existing corporation considers making the S corporation election, the potential corporate-level ‘built-in gain tax’ (IRC 1374) is often the most important tax cost to evaluate. Learn when and how the built-in gain tax is determined. Discuss topics that include the application of multiple ‘limitations’ on determining the tax and the potential use of existing corporate net operating losses and tax credits. Identify and evaluate tax planning ideas and strategies.

Highlights

• Identification of facts that could cause the imposition of the built-in gain tax • The calculation of the tax on “net recognized built-in gain” during the “recognition period” • The meaning of “current mandatory double tax” • The aggregate limitation based on “net unrealized built-in gain” • The limitation based on the “gain” that existed at conversion • The importance of valuation analysis at conversion • The taxable income limitation • Using existing corporate net operating losses and tax credits • Tax planning ideas and strategies to minimize or avoid the tax on the built-in gain

Prerequisites

Understanding the basics of the taxation of individuals, corporations, S corporations and partnerships.

Designed For

CPAs and attorneys.

Objectives

• Identify when the built-in gain tax could apply • Calculate the built-in gain tax, including the application of three “limitations” • Recognize tax planning techniques to minimize or eliminate the built-in gain tax

Preparation

None