Question

The built-in gains tax recognition period is the first________ years a former C corporation operates as an S corporation.

a. 1
b. 5
c. 10
d. 15

Answer 1

The recognition period for built-in gains tax after a C corporation transitions to an S corporation is 5 years. Sole owners and employees of corporations face various federal taxes. There's been a notable decline in corporate income tax revenue as a percentage of GDP since the 1950s.

Step-by-step explanation:

The built-in gains tax recognition period is the first 5 years a former C corporation operates as an S corporation. When an individual is the sole employee and owner of a corporation, he must contend with several different types of federal tax, including income tax, self-employment tax, taxes for Medicare and Social Security (also known as FICA), and unemployment tax. It's important to note that the revenue from the corporate income tax experienced a significant decline from the early 1950s, where it ranged between 5 and 6 percent of GDP, to just 1.3 percent of GDP in 2010.