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	Adjusted basis	FWV
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. BWI's taxable income for the same tax year is $900,000.

a. There is no built-in gain.

b. There is built-in gain of $675,000 of which $375,000 was recognized in 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

please explain why you choose this answer.