Ajax Computer Company is an accrual method calendar year taxpayer. Ajax has never advertised in the national media prior to this year. In November of this year, however, Ajax paid $1 million for television advertising time during a "super" sporting event scheduled to take place in early February of next year. In addition, in November of this year the company paid $500,000 for advertising time during a professional golf tournament which will occur once in April of next year. What amount of these payments, if any, can Ajax deduct this year?
A) $1 million
B) $500,000
C) $1.5 million
D) $1.5 million only if the professional golf tournament is played before April 15
E) No deduction can be claimed this year

Question

Quizplus · Accepted Answer

Deduct $1 million because under the 3½ month rule payment for a service qualifies as economic performance when actual performance (the service) is expected within 3½ months of the date of payment. Note that the $500,000 might also be deductible if it qualified as a recurring expense.

Ajax Computer Company Is an Accrual Method Calendar Year Taxpayer