Ajax Computer Company is an accrual method calendar year taxpayer. Ajax has neve

Question

Ajax Computer Company is an accrual method calendar year taxpayer. Ajax has never advertised in the national media prior to this year. In November of this year, however, Ajax paid $1.7 million for television advertising time during a "super" sporting event scheduled to take place in early February of next year. In addition, in November of this year the company paid $1,200,000 for advertising time during a professional golf tournament which will occur once in April of next year. What amount of these payments, if any, can Ajax deduct this year?

Multiple Choice

$1.70 million.

$2.90 million.

$2.90 million only if the professional golf tournament is played before April 15.

$1,200,000.

No deduction can be claimed this year.

Explanation / Answer

The Answer is "A"

A. $1.70 million

Deduct $1.70 million because under the 3.5 month rule payment for a service qualifies as economic performance when actual performance is expected within 3.5 months of the date of payment.

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