Hazards in Electing S Corporation Status After a Merger

Abstract

<p>The potential for triggering painful income tax liabilities from the “built-in gains” tax<strong>1 </strong>upon shifting from C corporation status to S corporation status is well known.<strong>2</strong> The built-in gains tax is imposed in an effort to thwart attempts by C corporations to elect S corporation status to minimize the effects of the modification of the corporate liquidation rules in the 1986 Act. However, a recent private letter ruling has focused attention on the imposition of the built-in gains tax in the event of a merger without regard to the date of the corporation’s election to be an S corporation.<strong>3</strong></p>