Discussion:Built-in Gains
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| 28 July 2006 | |
| I know there's been some postings on this already, but I haven't had much experience thus far with C to S conversions, so I want to make sure I've got this right.
Cash basis C-corp is going to elect S status and has about $800k in accounts receivable, but about $2 million in accounts payable. No other built-in gains, it's a service-based corporation, no real estate, only furniture, LHI, and machinery that could generate relatively small BIG. Since there's a large built-in loss with the A/P balance, there's no BIG at conversion date - any way to realize BIG during next 10-year period? What happens if, in a year during the recognition period, more A/R is collected than A/P is paid, and for that one year the BIG exceeds BIL? | |
Lpennington (talk|edits) said: | 28 July 2006 |
| The recognized income attributable to the A/R will be BIG to the extent it exceeds any recognized built-in loss items and built-in loss carryforwards. | |
| 28 July 2006 | |
| MSTguy, in your example, because of the cash basis accounts payable, the NUBIG (net unrealized built-in-gain) is zero. An S corporation with a zero or negative NUBIG can never be subject to the BIG tax. | |
| 29 July 2006 | |
| Perfect - thanks Riley. I just wanted to make sure there wasn't anything I was missing. | |
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