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, 2011, Canary has accrued a $100,000 bonus to Leticia. Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.
Under § 267(a)(2), an accrual method taxpayer must defer a deduction for an expenditure attributable to a cash method related party until such time the related party reports the amount as income. For purposes of this limitation, a more-than-50% shareholder of the corporation is a related party.
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