Question

In which of the following situations has constructive receipt occurred in the earlier year?

a. Arnold earned interest of $300 on his savings account, but did not withdraw the funds until the following year
b. Andrew worked the last two weeks of the year, but he will not be paid for those hours until Jan 4
c. Alex was out of town on Dec 31 and, therefore, unable to pick up his final paycheck. He picked it up on Jan 2
d. Ashley's last paycheck of the year was dated Dec. 30. She was unable to cash the check because the employer had insufficient funds
e. Amber received a year-end bonus check dated Dec 28, but she did not cash the check until Jan. 3

Answer 1

Constructive receipt means income is counted when it is made available to the taxpayer, not necessarily when it is physically received. Scenarios (a), (b), and (c) show constructive receipt has occurred in the earlier year, as the income was made available to Arnold, Andrew, and Alex, respectively, despite the actual possession occurring later.

Step-by-step explanation:

Constructive receipt occurs when income has been made available to a taxpayer such that they could take control of it, even if they have not actually taken possession of it. Examples of this are interest that has been credited to your bank account, wages earned for which you are due payment, and checks received but not yet cashed.

Based on the scenarios provided:

• Arnold's situation (a) represents constructive receipt because the interest was credited to his account and available for withdrawal in the earlier year, regardless of when he actually withdrew it.
• Andrew's situation (b) also illustrates constructive receipt, as he earned the wages in the earlier year, and the check being available shortly after the year-end does not delay the year of inclusion for tax purposes.
• Alex's situation (c) is another example of constructive receipt, even though he was out of town and picked up his check after the New Year; the funds were available to him in the earlier year.
• Ashley's scenario (d) likely does not represent constructive receipt, as she had no control over the funds due to her employer's insufficient funds.
• Amber's situation (e), like Alex's, shows constructive receipt as the check was available to her before the end of the year, though she chose not to cash it immediately.

Therefore, scenarios (a), (b), and (c) are instances where constructive receipt occurred in the earlier year.