1120-US: Prior C Corporation loss carryovers used to reduce built-in gain tax (FAQ)

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Question

Why are some of the prior C Corporation loss carryovers limited in calculating the built-in gains tax?

Answer

Capital Loss Carryover: The prior C Corporation capital loss carryover is allowed to the extent the net built-in gain is net capital gain. Capital loss carryovers cannot offset net built-in gain that is ordinary income.

General Business Credit Carryover: The prior C Corporation general business credit carryover is limited under IRC section 38(c). The credit allowed is limited to the taxpayer’s tax plus AMT, less the larger of (1) tentative minimum tax or (2) 25% of the amount by which the regular tax exceeds $25,000. Since many S Corporations would be treated as a “small” corporation for purposes of calculating the minimum tax, UltraTax/1120 does not take the tentative minimum tax into accounting when calculating the limited general business credit carryover to offset the built-in gains tax.

Minimum Tax Credit Carryover: The prior C Corporation minimum tax credit carryover is limited under IRC section 55(e)(5). The credit allowed is reduced by 25% of the amount by which regular tax exceeds $25,000.

Related topic: 1120-US: Built-in gain tax calculation for S Corporations FAQs

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