If an S corporation recognizes a built-in gain and pays tax on it, the shareholders Report their share of the individual gains reduced by the taxes paid by the 5 corporation that are attributable to such gains. Report their share of the entire gain in their own taxable income and obtain a credit for their share of taxes paid by the S corporation. Report no gain from the transaction. Report only gain from the transaction that is in excess of the built-in gain, ie. on appreciation aceruing after the first day of the first taxable year for which the corporation was an S corporation