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

question 106

Essay

Gerald, a cash basis taxpayer, owns 70% of the stock of Black Corporation, a calendar year, accrual basis C corporation. On December 31, 2018, Black accrued a bonus of $80,000 to Gerald, and paid the bonus to Gerald on January 2, 2019. 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?

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Definitions:

Non-Value-Added

Activities or processes that do not add value to a product or service from the customer's perspective, potentially leading to unnecessary costs.

Value-Added

The enhancement a company gives its product or service before offering the product to customers, which can differentiate a company in the market, increase product value, and command a higher price.

Design Engineering

The branch of engineering focused on the design, development, and testing of products, systems, or structures, ensuring they meet specified requirements.

External Failure Cost

Costs incurred when a product or service fails to meet quality standards after it is delivered to the customer, including returns, repairs, and warranty claims.