Jessica, a Cash Basis Individual, Is a 60% Shareholder of Crow

Essay

Jessica, a cash basis individual, is a 60% shareholder of Crow Corporation, a regular corporation. On January 1, 2011, Jessica loaned Crow $300,000, with the principal due in 5 years and 6% interest due each January 1. Crow, an accrual method, calendar year taxpayer, accrued $18,000 of interest expense on the loan on December 31, 2011, and paid the $18,000 to Jessica on January 1, 2012. How much is Crow's deduction for interest on this loan for 2011? Would your answer change if Jessica was a 25% shareholder of Crow?