Problem NO: 39

Until the end of year 0, Magic Carpets (MC) was a C corporation with a calendar year-end.  At the beginning of year 1, it elected to be taxed as an S

Until the end of year 0, Magic Carpets (MC) was a C corporation with a calendar year-end.  At the beginning of year 1, it elected to be taxed as an S corporation.  MC uses the LIFO method to value its inventory.  At the end of year 0, under the LIFO method, its inventory of rugs was valued at $150,000. Under the FIFO method, the rugs would have been valued at $170,000.  How much LIFO recapture tax must MC pay, and what is the due date of the first payment under the following alternative scenarios?

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