Reference no: EM132589663

Cannon and Bruno form Lemon Corporation. Cannon transfers property (basis of $365,000 and fair market value of $300,000) while Bruno transfers land (basis of $80,000 and fair market value of $290,000) and $10,000 in cash. Each receives 50% of Lemon Corporation's stock, which is worth a total of $600,000. As a result of these transfers:

a. Cannon has a recognized loss of $65,000; Bruno has a recognized gain of $210,000

b. Neither Cannon nor Bruno has any recognized gain or loss

c. Cannon has no recognized loss; Bruno has a recognized gain of $210,000

d. Lemon Corporation will have a basis in the land of $290,000

e. None of the above 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.

Question 1: Describe the tax consequences of the bonus to Canary (that is, in what taxable year may Canary deduct the bonus?) and to Leticia (that is, in what taxable year must Letitia include the bonus in her gross income?) under the following independent situations.

a. Leticia owns 35% of Canary Corporation's stock and the corporation pays the bonus to Leticia on February 1, 2020.

b. Leticia owns 75% of Canary Corporation's stock and the corporation pays the bonus to Leticia on April 1, 2020.

c. Leticia owns 75% of Canary Corporation's stock and the corporation pays the bonus to Leticia on February 1, 2020.

NOTE the following may be helpful: 2019 2020