At the end of the current taxable year, Gong Company accrued an expense for an account payable to Mexance Inc. Even if Gong and Mexance are related parties, Gong can deduct the accrued expense in the current year if Mexance also uses the accrual method of accounting for tax purposes.

Question

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If both parties use the accrual method of accounting for tax purposes, the expense can be deducted in the current year, even if they are related parties. However, if one of the parties uses the cash method of accounting, the deduction may be limited or disallowed.

At the End of the Current Taxable Year, Gong Company