Discussion:% of completion and the built in gains tax
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Discussion Forum Index --> Tax Questions --> % of completion and the built in gains tax
Barbeque17 (talk|edits) said: | 22 May 2007 |
| I have a C Corp Construction client who utilizes the % of completion method of accounting. Can anyone point me in the right direction pertaining to the possible exposure to Built in Gains tax upon conversion to an S Corp when the taxpayer is reporting under the % of completion method? | |
| 23 May 2007 | |
| There would be a BIG tax exposure if your client were using the Completed Contract method of accounting. The net unrealized built-in-gains would be equal to the excess of the income that would have been recognized using POC over the amount actually recognized using completed contract prior to the date of the S election.
Since your client is not using completed contract, I see no BIG tax exposure. See Reg ยง1.1374-4(g). | |
Barbeque17 (talk|edits) said: | 17 July 2007 |
| Expanding on this, what if the taxpayer was required to use the look back method in order to calculate over/under reporting of income in year prior to conversion and it was determined under the look back method the income was underreported in the C Corp year. Would the difference between income reported as a C corp in PY and the amount of income calculated under the look back method be subject to built in gains tax upon conversion to an S corporation. | |
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