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 2017.In December,Octo received a billing statement from Samantha for $5,000 and paid Samantha the $5,000 in January 2018.Samantha is a calendar-year taxpayer.When may Octo deduct the $5,000?
A)2017
B)2018
C)Either 2017 or 2018
D)The expense is not deductible since Samantha is Bart's sister.

Question

Quizplus · Accepted Answer

B)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.

Bart Owns 100% of the Stock of Octo Corporation,which Uses