Question

Big Homes Corporation is an accrual method calendar year taxpayer that manufactures and sells modular homes. This year for the first time Big Homes was forced to offer a rebate on the purchase of new homes. At year end, Big Homes had paid $12,000 in rebates and was liable for an additional $7,500 in rebates to buyers. What amount of the rebates, if any, can Big Homes deduct this year?A. $12,000 because rebates are payment liabilities.B. $19,500 because Big Homes is an accrual method taxpayer.C. $19,500 if this amount is not material, Big Homes expects to continue the practice of offering rebates in future years, and Big Homes expects to pay the accrued rebates before filing their tax return for this year.D. $12,000 because the $7,500 liability is not fixed and determinable.E. Big Homes is not entitled to a deduction because rebates are against public policy.

Answer 1

C. $19,500 if this amount is not material, Big Homes expects to continue the practice of offering rebates in future years, and Big Homes expects to pay the accrued rebates before filing their tax return for this year.

Step-by-step explanation:

They are viewed in the tax law as a reduction to the purchase price of the item. Thus, this decreases the income from the houses.

Is important to consider that this must be part of the commercial activity from Big Homes and in subsequent years this rebates will continue to occur.

Thus, if Big Homes Corporation pay the accrued rebate it confirms the discoutn and thus, the deduction.