Built-in Corporation ("B") was formed in 2000 as a C corporation. The shareholders of B elected S corporation status effective as of January 1, 2004, when it had no Subchapter C earnings and profits and the following assets:
Asset Adj. Basis F.M.V.
Land $30,000 $20,000
Building 10,000 35,000
Machinery 15,000 30,000
For purposes of this problem, disregard any cost recovery deductions that may be available to B. Consider the shareholder and corporate level tax consequences of the following alternative transactions:
a. B sells the building for $50,000 in 2005; its taxable income for 2005 if it were not an S corporation would be $75,000.
b. Ssame as (a), above, except that B's taxable income for 2005 if it were not an S corporation would be $20,000.
c. Same as (a), above, except that B also sells the machinery for $40,000 in 2006, when it would have substantial taxable income if it were not an S corporation.
d. B trades the building for an apartment building in a tax-free section 1031 exchange and then sells the apartment building for $50,000 in 2005, when it would have substantial taxable income if it were no an S corporation.
e. B sells the building for $90,000 in 2014.