Question

North Inc. is a calendar-year C corporation, accrual-basis taxpayer. At the end of year 1, North accrued and deducted the following bonuses for certain employees for financial accounting purposes.
$7,500 for Lisa Tanaka, a 30 percent shareholder.
$10,000 for Jared Zabaski, a 35 percent shareholder.
$12,500 for Helen Talanian, a 20 percent shareholder.
$5,000 for Steve Nielson, a 0 percent shareholder.

Unless stated otherwise, assume these shareholders are unrelated.

How much of the accrued bonuses can North Inc. deduct in year 1 under the following alternative scenarios?
a. North paid the bonuses to the employees on March 1 of year 2.
b. North paid the bonuses to the employees on April 1 of year 2.
c. North paid the bonuses to employees on March 1 of year 2 and Lisa and Jared are related to each other, so they are treated as owning each other's stock in North.
d. North paid the bonuses to employees on March 1 of year 2 and Lisa and Helen are related to each other, so they are treated as owning each other's stock in North.

Answer 1

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