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year. Petitioner did not ask respondent for permission to change
its method of accounting for the year in issue.
Petitioner overstated its ending inventory on its return
for 1987 by $24,033.
OPINION
A. Background
Petitioner realized a $1,160,069 net capital gain from the
sale of a building in May 1985. At that time, petitioner was a C
corporation. Petitioner reported the gain on the installment
method, thereby postponing recognition of $929,915 of the gain
until 1987 when it was to receive the last installment. Sec.
453(c).
On July 1, 1985, petitioner elected to be taxed as an S
corporation. At that time, petitioner had a realized but
unrecognized capital gain of $929,915 from the sale. That amount
is $12,762 more than 50 percent of the amount of petitioner's
revised taxable income for the year in issue (before deciding the
issues in dispute here).3 An S corporation must pay tax if its
net recognized built-in gain is more than 50 percent of its
taxable income. Sec. 1374(a).
3This takes into account petitioner's inadvertent $24,033
understatement of its ending inventory.
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