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Fixed Assets and UltraTax CS 2023 help is now on Help and Support. We're still moving articles, but you can find most content for the 2023 tax year there. Continue using the Help & How-To Center for tax years 2022 and older.

Question

Why is the built-in gain tax deductible on the S Corporation return?

Answer

Per IRC section 1366(f)(2), the built-in gain tax is treated as a loss sustained by the S Corporation during such taxable year. The character of the loss is determined by allocating the loss proportionately among the recognized built-in gains that gave rise to the built-in gain tax.

The built-in gain tax attributable to ordinary income property is deducted on the Taxes and licenses line on Form 1120S, Page 1. The built-in gain tax attributable to short-term or long-term capital gain property is reported on Schedule D as a subtraction from the total short-term or long-term capital gain.

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