Question
Unex Company is an accrual basis taxpayer. This year, an employee sued Unex for unlawful age discrimination, and the company's auditors required it to accrue
Unex Company is an accrual basis taxpayer. This year, an employee sued Unex for unlawful age discrimination, and the company's auditors required it to accrue a $500,000 liability for the estimated expense of settling this lawsuit. Which of the following statements is true?
-
Unex can deduct the accrued expense only if it makes a written disclosure to the IRS of the contingent liability.
-
Unex will be allowed a deduction in the year in which its liability for the settlement becomes fixed and the amount of the settlement can be estimated with reasonable accuracy.
-
Unex will be allowed a deduction in the year that it actually pays the settlement to the employee.
-
Unex can never deduct any expense in connection with this lawsuit.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started