Evelyn is the president and sole shareholder of Ephron Corporation. Ephron is an accrual basis taxpayer and uses a calendar year. Evelyn is a cash basis, calendar-year taxpayer.

During the second half of 2009, Ephron recorded several million dollars of sales to customers with cash payment expected in the first half of 2010. To reduce the taxable income at the corporate level, Ephron accrues a $200,000 bonus to Evelyn on December 15, 2009. As of December 15, 2009, the corporation does not have cash on hand to pay the bonus but expects to receive cash from customers in March or April 2010.

Evelyn is considering the following alternatives for the corporation’s payment of the bonus:

l Have the corporation immediately borrow more on its commercial line of credit and pay the bonus by December 31, 2009.

l Wait for the cash flow from customers and pay the bonus around March 1, 2010.

l Wait to pay the bonus until around April 15, 2010.

Read and analyze the following authorities and determine when the corporation is allowed to deduct the bonus for each of the 3 payment alternatives:

Sec. 267.

Reg. Sec. 1.267(a)-1.