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1988, the value of petitioner’s stock has not exceeded $5
million.
Effective December 1, 1989, petitioner revoked its S
election. From that date through 1993 (i.e., 1 short taxable
year and 4 calendar years), petitioner filed returns as a C
corporation.
Effective January 1, 1994, petitioner again made a valid
election to be an S corporation. During the years in issue,
petitioner sold assets which, except for certain partnership
interests, were acquired prior to 1988.
Discussion
Prior to the enactment of the TRA, section 1374 imposed a
tax on capital gain recognized by an S corporation within 3 years
after making a section 1362(a) election. See sec. 1374(a),
(c)(1), prior to amendment by TRA (prior sec. 1374). As amended
by the TRA, section 1374 imposes a tax on an S corporation’s
built-in gain recognized during a 10-year period beginning with
“the 1st taxable year for which the corporation was an S
corporation.” Sec. 1374(a), (d)(7). Section 1374(d)(9), as
amended, states: “Any reference in this section to the 1st
taxable year for which the corporation was an S corporation shall
be treated as a reference to the 1st taxable year for which the
corporation was an S corporation pursuant to its most recent
election under section 1362.” “Built-in” gain is the increase in
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