Question

Bart owns 100% of the stock of Octo Corporation, which uses the accrual method. Bart's sister Samantha, a cash method taxpayer, did some advertising work for Octo in November 2014. In December, Octo received a billing statement from Samantha for $5,000 and paid Samantha the $5,000 in January 2015. Samantha is a calendar year taxpayer. When may Octo deduct the $5,000?A) 2014B) 2015C) Either 2014 or 2015D) The expense is not deductible since Samantha is Bart's sister.

Answer 1

B) 2015

Step-by-step explanation:

B) 2015

Octo and Samantha are related parties under the constructive ownership rules of Section 267. Octo may not take a deduction until Samantha recognizes the $5,000 in income.