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

question 102

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, 2018, 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, 2019.
b. Leticia owns 75% of Canary Corporation's stock and the corporation pays the bonus to Leticia on May 6, 2019.
c. Leticia owns 75% of Canary Corporation's stock and the corporation pays the bonus to Leticia on April 12, 2019.

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