Reference no: EM132516661

Question - An accrual basis taxpayer, Mega Motors Company, had one of its trucks leave the road and hit a small child playing on the sidewalk. In year 1, Mega settled with the parents and agreed to pay $50,000 each year for 40 years. An accrual basis taxpayer is subject to the all events test for deductions which is satisfied when all events have occurred to fix the taxpayer's liability and the amount can be determined with reasonable accuracy. The all events test will not be satisfied until "economic performance" has occurred. Assume Mega is in the 35% marginal rate and can earn an 8% after-tax return on its money. What would be the economic effect if only the all events test applied without the requirement of economic performance?