Question

On December 27, 2022, Happy Holiday Company received a $2,500 check in the mail for services performed in December. The office closed on December 24, 2022, for two weeks for the holiday break. Because of the constructive receipt doctrine, Holiday will report $0 income related to these services on its 2022 tax return.

a) True

b) False

Answer 1

The statement is false because according to the constructive receipt doctrine, the Happy Holiday Company must report the $2,500 as income in 2022 since the check was received before year-end and the services were provided in that year.

Step-by-step explanation:

The statement is false. According to the constructive receipt doctrine, income is considered earned and taxable when it is credited to the taxpayer's account, set apart for them, or made available so that they can draw upon it at any time, even if they do not have physical possession of it.

In this case, Happy Holiday Company received the check before the end of the year for services performed, which means they have constructive receipt of the income. The fact that their office was closed for the holiday break does not change the constructive receipt of the income. Therefore, the income is reportable for the 2022 tax year.