Question

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g., no obligation to repay the amount):

A. Claim of right
B. Constructive receipt
C. Return of capital principle
D. Wherewithal to pay
E. None of these

Answer 1

The rule stating that income is realized when received with no restrictions is known as 'constructive receipt.' This falls under US income tax rules requiring tax on income that a taxpayer has the power to control or use.

Step-by-step explanation:

The rule that states income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income is known as constructive receipt. This concept falls under the broader principles of taxation in the United States, specifically under income tax rules. The rule of constructive receipt indicates that a taxpayer must acknowledge and pay taxes on income that they have the power to control or utilize, regardless of whether they have physically taken possession of it.