An accrual basis partnership may deduct interest owed on a note as of the end of its taxable year, even though it is not paid until May of the next year.The note is held by a cash basis taxpayer who owns 60 percent of the business.

Question

Quizplus · Accepted Answer

Under the related party rules, an accrual basis taxpayer cannot deduct interest owed to a cash basis related party until the interest is actually paid.

An Accrual Basis Partnership May Deduct Interest Owed on a Note