Gerald, a Cash Basis Taxpayer, Owns 70% of the Stock

question 105

Essay

Gerald, a cash basis taxpayer, owns 70% of the stock of Black Corporation, a calendar year, accrual basis C corporation. On December 31, 2013, Black accrued a bonus of $80,000 to Gerald, and paid the bonus to Gerald on January 3, 2014. When does Gerald report the bonus, and when does Black Corporation deduct the bonus? Would your answers change if Gerald was a 40% shareholder of Black?

---

Definitions:

Collateral

Property or assets pledged by a borrower to secure a loan, subject to seizure on default.

Third-Party Beneficiary

A person who is not a party to a contract but who has the right to enforce it because the parties to the contract made the contract with the intent to benefit him.

Implied

Something not explicitly stated but understood to be included or involved through indirect indications or logical inference.

Statute of Frauds

A legal concept that requires certain types of contracts to be in writing and signed by the party to be charged, in order to be enforceable.