### Question
What does recognized built-in gain mean?


### Answer
**Recognized built-in gain** has the following meaning in *26 U.S.C. § 1374*:

> any gain recognized during the recognition period on the disposition of any asset except to the extent that the S corporation establishes that—


(A) such asset was not held by the S corporation as of the beginning of the 1st taxable year for which it was an S corporation, or


(B) such gain exceeds the excess (if any) of—


(i) the fair market value of such asset as of the beginning of such 1st taxable year, over


(ii) the adjusted basis of the asset as of such time

#### Citation:
  - *26 U.S.C. § 1374*
  - Heading: **Subtitle A-Income Taxes > CHAPTER 1-NORMAL TAXES AND SURTAXES > Subchapter S-Tax Treatment of S Corporations and Their Shareholders > PART III-SPECIAL RULES**

