Rodney,the sole shareholder of a calendar year,accrual basis C corporation,loaned the corporation a substantial amount of money on January 1,2008.The corporation accrued $45,000 of interest expense on the loan on December 31,2008.It pays the interest to Rodney,a cash basis taxpayer,on April 1,2009.Under these facts:
A)The corporation will be allowed to deduct the interest expense in 2008 and Rodney will be required to report the interest income in 2009.
B)The corporation will be allowed to deduct the interest expense in 2009 and Rodney will be required to report the interest income in 2009.
C)The corporation will be allowed to deduct the interest expense in 2009 and Rodney will be required to report the interest income in 2008.
D)The corporation will be allowed to deduct the interest expense in 2008 and Rodney will be required to report the interest income in 2008.
E)None of the above.

Question

Quizplus · Accepted Answer

A corporation that uses the accrual method cannot claim a deduction for an accrual owed to a related party until the recipient reports that amount as income.Rodney,a cash basis taxpayer,must report the income in the year he receives the payment from the corporation.

Rodney,the Sole Shareholder of a Calendar Year,accrual Basis C Corporation,loaned