Because of its quality investments, Carolina Corporation has always generated 30% to 40% of its gross income from passive sources. In the current year, Carolina sold a block of stock in a company it acquired several years ago. As a result of the sale, the corporation realized a substantial long-term capital gain that will increase this year's investment income from 40% to 70% of gross income. Explain to Carolina's president why she should or should not be worried about the personal holding company tax. (Assume that the stock ownership requirement is met.)

Because of its quality investments, Carolina Corporation has always generated 30% to 40% of its gross income from passive sources. In the current year, Carolina sold a block of stock in a company it acquired several years ago. As a result of the sale, the corporation realized a substantial long-term capital gain that will increase this year's investment income from 40% to 70% of gross income. Explain to Carolina's president why she should or should not be worried about the personal holding company tax. (Assume that the stock ownership requirement is met)