Part 2 QBI, Credits, NOLs and Accounting Methods question: accrual-method C corporation accrued

Part 2QBI, Credits, NOLs and Accounting Methods

An accrual-method C corporation accrued a $50,000 bonus to its 60% shareholder (a cash-method individual) at the end of 2025 and paid it on February 10, 2026. When can the corporation deduct it?

A In 2026, when the shareholder includes it in income
B In 2025, because it was paid within 2½ months of year end
C In 2025, because the all events test was met
D Never, because it is a constructive dividend

Show the answer and explanation

Answer: A. In 2026, when the shareholder includes it in income

Section 267(a)(2) defers an accrual-method payer's deduction for amounts owed to a related cash-method payee (including a shareholder owning more than 50%) until the payee includes the amount in income. The 2½-month rule does not override this. The corporation deducts the bonus in 2026, assuming it is reasonable compensation. Source: IRC 267(a)(2), 267(b)(2); Pub. 538 (2025). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Applying the 2½-month rule to payments to a controlling shareholder.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.