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Sixteen years ago, Biff, Buffy, and Buffy, Jr. organized Beach Wear Inc. (BWI) to sell beach wear throughout California. The sole class of common stock of BWI is owned by Buffy (60%) and her husband, Biff (20%), and Buffy, Jr. (20%). On December 1 of the tax year specified for the exam, BWI files an S election. As of December 31 of that same tax year, BWIs balance sheet includes the following: Asset AB FMV Accounts Receivable $ 0 $300,000 Payments Due Under Installment Sale $450,000 $600,000 Machinery $ 0 $225,000

During the next tax year, BWI collected the accounts receivable receiving $300,000. BWI also collected the one of two payments still due on the installment sale of $300,000. BWIs taxable income for the same tax year is $900,000. Group of answer choices

a. There is no built-in gain.

b. There is built-in gain of $675,000 of which $375,000 was recognized in the next tax year (after the tax year specified for the exam).

c. The flow-through of the built-in gain to Buffy is $225,000.

d. None of the above.