Bart owns 100% of the stock of Octo Corporation,which uses the accrual method.Bart's sister Samantha,a cash method taxpayer,did some advertising work for Octo in November 2015.In December,Octo received a billing statement from Samantha for $5,000 and paid Samantha the $5,000 in January 2016.Samantha is a calendar year taxpayer.When may Octo deduct the $5,000?

Question

Quizplus · Accepted Answer

Since Octo Corporation uses the accrual method, the expense is deductible in the year in which the expense was incurred and all events have occurred to establish the fact of the liability. In this case, the advertising work was done in November 2015 but Octo did not receive a billing statement until December 2015. Therefore, the liability to pay Samantha was not established until December 2015, and the expense can only be deducted in 2016 when the payment was actually made.

Bart Owns 100% of the Stock of Octo Corporation,which Uses