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 Selection. As of December 31 of that same tax year, BWI's balance sheet includes the following: AB $0 FMV $300,000 Asset Accounts Receivable Payments Due Under Installment Sale Machinery $450,000 SO $600,000 $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. BWI of the statement above holds real estate for investment at the time of its Selection. Its S election is effective January 1 of the tax year specified as the next year (after the year specified for the exam). During that same tax year, it sells land for $915,000 less 10% costs with a basis of $300,000. Installment payments are made of $165,000 in the same tax year, $150,000 in the next tax year, $150,000 in Year 3, $450,000 in Year 4. BWI's income from operations was $300,000 in Year 1, a loss of $150,000 in Year 2, income of $450,000 in Year 3, and income of $600,000 in Year a. In Year 2, BWI will owe no built-in gain tax under 1374(d)(2)(A). b.In Year 3, BWI will owe built-in gain tax based on $150,000 collected times 57.21% gross profit percentage times 21% or $18,021. In Year 3, BWI will owe twice as much built-in gain tax as answer B or $36,042. d. A and B. e. A and C. QUESTION 35 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 Selection. As of December 31 of that same tax year, BWI's balance sheet includes the following: AB $0 FMV $300,000 Asset Accounts Receivable Payments Due Under Installment Sale Machinery $450,000 SO $600,000 $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. BWI of the statement above holds real estate for investment at the time of its Selection. Its S election is effective January 1 of the tax year specified as the next year (after the year specified for the exam). During that same tax year, it sells land for $915,000 less 10% costs with a basis of $300,000. Installment payments are made of $165,000 in the same tax year, $150,000 in the next tax year, $150,000 in Year 3, $450,000 in Year 4. BWI's income from operations was $300,000 in Year 1, a loss of $150,000 in Year 2, income of $450,000 in Year 3, and income of $600,000 in Year a. In Year 2, BWI will owe no built-in gain tax under 1374(d)(2)(A). b.In Year 3, BWI will owe built-in gain tax based on $150,000 collected times 57.21% gross profit percentage times 21% or $18,021. In Year 3, BWI will owe twice as much built-in gain tax as answer B or $36,042. d. A and B. e. A and C. QUESTION 35