Canary Corporation,an accrual method C corporation,uses the calendar year for tax purposes.Leticia,a cash method taxpayer,is both a shareholder of Canary and the corporation's CFO.On December 31,2011,Canary has accrued a $100,000 bonus to Leticia.Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.
Under § 267(a)(2),an accrual method taxpayer must defer a deduction for an expenditure attributable to a cash method related party until such time the related party reports the amount as income.For purposes of this limitation,a more-than-50% shareholder of the corporation is a related party.

Question

Canary Corporation,an accrual method C corporation,uses the calendar year for tax purposes.Leticia,a cash method taxpayer,is both a shareholder of Canary and the corporation's CFO.On December 31,2011,Canary has accrued a $100,000 bonus to Leticia.Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.
  Under § 267(a)(2),an accrual method taxpayer must defer a deduction for an expenditure attributable to a cash method related party until such time the related party reports the amount as income.For purposes of this limitation,a more-than-50% shareholder of the corporation is a related party.

Quizplus · Accepted Answer

The Answer of Canary Corporation,an accrual method C corporation,uses the calendar year for tax purposes.Leticia,a cash method taxpayer,is both a shareholder of Canary and the corporation's CFO.On December 31,2011,Canary has accrued a $100,000 bonus to Leticia.Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.
  Under § 267(a)(2),an accrual method taxpayer must defer a deduction for an expenditure attributable to a cash method related party until such time the related party reports the amount as income.For purposes of this limitation,a more-than-50% shareholder of the corporation is a related party.

Canary Corporation,an Accrual Method C Corporation,uses the Calendar Year for Tax