Check this out – HW of R3 in Becker. Where is this 3 1/2 month (Apr 15) coming from? Everything in my book says 2 1/2 month (Mar 15). Even see articles online recently dated stating 2 1/2 month.
Question: CPA-02106
Axis Corp. is an accrual basis calendar year corporation. On December 13, Year 1, the Board of Directors declared a two percent of profits bonus to all employees for services rendered during Year 1 and notified them in writing. None of the employees own stock in Axis. The amount represents reasonable compensation for services rendered and was paid on April 13, Year 2. Axis' bonus expense may:
a.Be deducted on Axis' Year 2 tax return.
b.Not be deducted on Axis' Year 1 tax return because the per share employee amount cannot be determined with reasonable accuracy at the time of the declaration of the bonus.
c.Not be deducted on Axis' tax return because payment is a disguised dividend.
d.Be deducted on Axis' Year 1 tax return.
Explanation
Choice “d” is correct. The deduction is an ordinary and necessary business expense treated just as any other compensation expense is treated. Axis is an accrual basis taxpayer, and the deduction is taken on the return for the year in which the expense accrued because it was paid within 3-1/2 months of year-end.
BEC - 74, 77
FAR - 72, 71 (retake 7/29)
REG - 69
AUD - Q4 '16
CA Candidate
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