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and tax purposes on the basis of a fiscal year ending May 31
using the accrual method of accounting.
Sometime in the middle of May 1990, Messrs. Cunniff and
Petar met for the purpose of reviewing petitioner’s results for
the taxable year. At this meeting it was decided that petitioner
would award Mr. Petar a bonus of $100,000 in consideration of his
extraordinary efforts and the company’s favorable performance for
the year. The bonus was accrued on petitioner’s books for FYE
5/31/90. For cash-flow reasons Mr. Petar wanted to postpone
actual payment until some time in the next fiscal year. Mr.
Cunniff advised him that in order for petitioner to claim a
deduction for the accrued bonus for FYE 5/31/90, payment would
have to be made by August 15, 2-1/2 months following the close of
the taxable year. In accordance with its accountant’s advice,
petitioner issued Mr. Petar a check for $100,000 on August 14,
1990. In prior years bonuses had always either been paid in cash
by the end of the fiscal year or accrued and paid in cash within
2-1/2 months of the fiscal yearend. In no prior year in which
actual payment of a bonus was deferred had petitioner issued a
note evidencing the accrued liability.
On its Federal income tax return (Form 1120) for FYE
5/31/90, petitioner claimed a deduction for compensation of
officers in the total amount of $169,800, which included the
$100,000 bonus awarded to Mr. Petar. Mr. Petar reported the
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