Doctrine of Constructive Receipt

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Tax Research Memorandum Edward Darling Problem #2 10/17/08 I. Facts: On January 2, 2003, Adrian received a check in the mail from Ace Distributors for the amount of $10,000. Adrian is concerned about the year in which the $10,000 is taxable because the check was dated December 30, 2002. Adrian states that it would have been unreasonable for her to drive 50 miles to pick up the check, and it was a holiday. Therefore, banks would not have been open, and she could not have received credit for the check until Monday. II. Issue: Did the taxpayer have constructive receipt in 2002? III. Authority: IRC § 1.451-2 (a) indicates that income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions. This section also goes on to state that if a corporation credits its employees with bonus stocks, but the stock is not available to such employees until a future date, the mere crediting on the books of the corporation does not constitute receipt. In a case where a taxpayer was owed severance pay from her employer following a merger, the employer mailed her severance check in a certified letter on December 30, 1974. A postal carrier attempted to deliver the letter to her on December 31, 1974, but she was not home and left a note saying to pick the letter up at the post office after 3:00 pm. The taxpayer did not return home until 5:00 pm that day, and the post office was closed. She finally received the letter on January 2, 1975 and did not include her severance amount on her 1974 return. The IRS challenged this, and the Tax court sided with the taxpayer because she had substantial limitations to her control over the funds. TCM, [ CCH Dec. 34,914(M)] , Beatrice Davis v. Commissioner, Income: Year of receipt: Constructive income: Control.--, (Jan. 12, 1978)

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