Section 1374 applies to the recognition of net unrealized gains existing when a C corporation converts to an S corporation. The amount of the built-in gains (the fair market value in excess of the tax basis) from both tangible and intangible assets must be determined as of the date of the S election. If the S corporation sells or disposes of assets with a built-in gain within ten years of the date of the S election, there will be additional taxes imposed on the gain.
