A cash basis taxpayer purchased a certificate of deposit for $900 on July 1,2010 that will pay $1,000 upon its maturity on June 30,2012.The taxpayer must recognize a portion of the income in 2010.

Question

Quizplus · Accepted Answer

The taxpayer must recognize $100 of interest income in 2010, even though the certificate of deposit will not mature until 2012. This is because the taxpayer is on a cash basis, which means that they must recognize income when it is received, regardless of when it was earned.

A Cash Basis Taxpayer Purchased a Certificate of Deposit for $900