Tax Research - Constructive Receipt

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Adrian is a salesperson who represents several wholesale companies. On January 2, 2008, she received by mail a commission check from Ace Distributors in the amount of $10,000 that was dated December 31, 2007. Adrian is concerned about the year in which the amount of $10,000 is taxable. Although the check is dated 2007, she contends that it would have been unreasonable for her to drive 100 miles (one way) to the Ace offices on the eve of a holiday to collect her check. Further, Adrian maintains that even if she had made the trip to collect the check, by the time she returned home, the bank would have closed and she could not have deposited the check until January. ISSUES:

Does Adrian include the $10,000 on her 2007 or 2008 tax return? CONCLUSION:
In general, constructive receipt occurs when income is credited to a taxpayer's account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions. The question arises then, did Adrian, in her situation, face substantial limitations or restrictions on constructively receiving the $10,000 in the year 2007.

Following case law, Adrian should not have to recognize the $10,000 on her 2007 tax return. Whether or not she had the option of picking up the check, the circumstances she would have had to face to do so (a 200 mile round trip drive on the eve of a holiday) did present a substantial limitation on receipt of her check. DISCUSSION:

Internal Revenue Code sec. 451(a) states that under the general rule regarding income recognition, the amount of any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under the method of accounting used in...
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