Canary Corporation, an Accrual Method C Corporation, Uses the Calendar

question 121

Essay

Canary Corporation, an accrual method C corporation, uses the calendar year for tax purposes. Leticia, a cash method taxpayer, is both a shareholder of Canary and the corporation's CFO. On December 31, 2019, Canary has accrued a $75,000 bonus to Leticia. Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.
a. Leticia owns 35% of Canary Corporation's stock and the corporation pays the bonus to
Leticia on February 4, 2020.
b. Leticia owns 75% of Canary Corporation's stock and the corporation pays the bonus to
Leticia on May 6, 2020.
c. Leticia owns 75% of Canary Corporation's stock and the corporation pays the bonus to
Leticia on April 7, 2020.

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Definitions:

Portfolio

A collection of financial investments like stocks, bonds, commodities, and cash equivalents owned by an individual or institutional investor.

Expropriation

The act of a government taking privately owned property, often without fair compensation, for the public good.

Foreign Exchange Transactions

Trades between different currencies, involving the exchange of currency from one country for that of another at an agreed rate.

Tax Policy

The set of laws and regulations that govern how taxes are collected, the rates, exemptions, and incentives, impacting individuals and businesses.