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currently includable in gross income under the payee’s method of
accounting. Prior to its amendment as part of the Deficit
Reduction Act of 1984, Pub. L. 98-369, sec. 174(a)(1), 98 Stat.
704, the section operated to deny an accrual basis taxpayer a
current deduction for accrued business expenses payable to a
related cash basis taxpayer unless payment was made within 2-1/2
months after the close of the taxable year. Under the law in
effect for the taxable year in issue, deduction of the accrued
expenses is not allowable until paid to the related cash basis
taxpayer. See Tate & Lyle, Inc. v. Commissioner, 103 T.C. 656,
659-661 (1994), revd. and remanded on other grounds 87 F.3d 99
(3d Cir. 1996); H. Rept. 98-861, at 1032-1033 (1984), 1984-3 C.B.
(Vol. 2) 1, 286-287. A corporation and an individual who owns
more than 50 percent of its stock are related parties within the
meaning of section 267(a)(2). Sec. 267(b)(2). An expense is
considered paid for purposes of this section to the extent of the
fair market value of any negotiable note received in payment of
the expense. Musselman Hub-Brake Co. v. Commissioner, 139 F.2d
65 (6th Cir. 1943); Hartland Associates v. Commissioner, 54 T.C.
1580, 1587-1588 (1970); cf. Don E. Williams Co. v. Commissioner,
429 U.S. 569, 579-583 (1977); sec. 1.267(a)-1(b)(3), Income Tax
Regs.
The parties agree that section 267(a)(2) governs the
deductibility of the bonus awarded to Mr. Petar during FYE
5/31/90. In support of the claimed deduction petitioner produced
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