The correct answer is a) Built-in gains tax<\/strong>.<\/p>\n\n\n\n An S corporation is a special type of corporation that is generally taxed as a pass-through entity, meaning its income is not taxed at the corporate level. Instead, the income “passes through” to the shareholders, who report it on their personal tax returns. However, S corporations are subject to specific taxes under certain conditions, one of which is the built-in gains tax<\/strong>.<\/p>\n\n\n\n In summary, the built-in gains tax<\/strong> is the primary tax that an S corporation may be subject to, especially if it has converted from a C corporation and sells assets with built-in gains.<\/p>\n\n\n\n An S corporation is subject to the following tax(es). Question 7 options: a) Built-in gains tax. b) Corporate income tax. c) Alternative minimum tax. The Correct Answer and Explanation is: The correct answer is a) Built-in gains tax. Explanation: An S corporation is a special type of corporation that is generally taxed as a pass-through […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-247142","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/247142","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=247142"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/247142\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=247142"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=247142"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=247142"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Explanation:<\/h3>\n\n\n\n
\n
If an S corporation was previously a C corporation and converted to an S corporation, it may still be subject to the built-in gains (BIG) tax. This tax applies if the corporation sells assets that had built-in gains at the time of the conversion. Built-in gains refer to the appreciation in value of the corporation’s assets that existed at the time of the conversion to an S corporation. If the S corporation sells these appreciated assets within a certain period (usually five years), it will be taxed at the corporate level on the gains that were “built-in” when it converted from a C corporation. This is to ensure that there is no avoidance of tax on gains that were accrued while the company was a C corporation.<\/li>\n\n\n\n
Generally, S corporations are not<\/strong> subject to corporate income tax. The tax is passed through to the shareholders, who pay individual income taxes on their share of the corporation’s income.<\/li>\n\n\n\n
The AMT typically applies to C corporations and individuals who have significant deductions that reduce their taxable income below a certain threshold. However, S corporations themselves are not<\/strong> subject to the AMT, although the shareholders might be, depending on their individual financial situation.<\/li>\n<\/ol>\n\n\n\n![\"\"](\"https:\/\/learnexams.com\/blog\/wp-content\/uploads\/2025\/07\/learnexams-banner5-985.jpeg\")
<\/figure>\n","protected":false},"excerpt":{"rendered":"