How much of the accrued bonuses can north inc deduct

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North Inc. is a calendar-year, accrual-basis taxpayer. At the end of the year 1, North accrued and deducted the following bonuses for certain employees for financial accounting purposes.

  • $7,500 for Lisa Tanaka, a 30 percent shareholder.
  • $10,000 for Jared Zabaski, a 35 percent shareholder.
  • $12,500 for Helen Talanian, a 20 percent shareholder.
  • $5,000 for Steve Nielson, a 0 percent shareholder.

Unless stated otherwise, assume these shareholders are unrelated.

How much of the accrued bonuses can North Inc. deduct in year 1 under the following alternative scenarios?

a. North paid the bonuses to the employees on March 1 of year 2.

b. North paid the bonuses to the employees on April 1 of year 2.

c. North paid the bonuses to employees on March 1 of year 2 and Lisa and Jared are related to each other, so they are treated as owning each other's stock in North.

d. North paid the bonuses to employees on March 1 of year 2 and Lisa and Helen are related to each other, so they are treated as owning each other's stock in North.

Reference no: EM13514934

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