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.

BWI of the statement above invested in common stock of another corporation, Apple Computer, which represented a fractional interest in the company. BWI elected S status beginning January 1, of the year specified for the exam. BWI purchased the Apple stock for $300,000 in January, 10 years ago. On December 31, of last year, the stock was still worth $300,000. On December 30, the same specified year, the stock was sold for $900,000. BWI had earnings on profits as a C Corporation of $600,000 on December 31, last year. BWI had the following items of income and expenses for December 31, this specified year.

Operational Income $1,155,000

Tax Exempt Income 45,000

Gain from sale of Apple Stock 600,000

Total Income $1,800,000

Operational Expense $600,000

Depreciation 15,000

Investment Advice 18,000

Interest Expense 117,000

Total Expenses 750,000

Total Net Income $1,050,000

a.	Built-in gains tax is due.
	b.	Excess net passive investment income tax is due.
	c.	Passive investment income tax is due since the gains from the stock and tax exempt income totaling $645,000 are more than 25% of the $1,800,000 gross receipts.
	d.	None of the above.