On December 31,2015,Flamingo,Inc. ,a calendar year,accrual method C corporation,accrues a bonus of $50,000 to its president (a cash basis taxpayer),who owns 75% of the corporation's outstanding stock.The $50,000 bonus is paid to the president on February 2,2016.For Flamingo's 2015 Form 1120,the $50,000 bonus will be a subtraction item on Schedule M-1.

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The bonus is not deductible in 2015 because it was paid to a related party (the president who owns more than 50% of the corporation) after the end of the tax year. Under the accrual method, expenses to related parties are only deductible when paid. Therefore, it would not be a subtraction item on the 2015 Schedule M-1.