Question

In which of the following situations has constructive receipt occurred in the earlier year? (Check all that apply.)

A. Alex was out of town on December 31 and, therefore, unable to pick up his final paycheck. He picked it up on January 2.

B. Ashley's last paycheck of the year was dated Dec. 30. She was unable to cash the check because the employer had insufficient funds.

C. Amber received a year-end bonus check dated December 28, but she did not cash the check until Jan. 3.

D. Arnold earned interest of $300 on his savings account, but did not withdraw the funds until the following year.

E. Andrew worked the last two weeks of the year, but he will not be paid for those hours until January 4.

Answer 1

Constructive receipt has occurred in the earlier year for Alex, Amber, and Arnold because the funds were made available to them, regardless of physical receipt or cashing the checks.

Step-by-step explanation:

Constructive receipt in taxation means that income is considered received when it is made available to a taxpayer, not necessarily when it is physically received. To determine if constructive receipt occurred in the earlier year for each scenario:

• Alex was out of town and unable to pick up his paycheck on December 31, but since it was available to him, constructive receipt is said to have occurred in the earlier year.
• Ashley's paycheck could not be cashed due to the employer's insufficient funds, meaning there was no constructive receipt since the funds weren't available.
• Amber received her check on December 28, and despite cashing it later, constructive receipt occurred in the earlier year because the income was available to her.
• Arnold's interest was credited to his account and thus available to him in the earlier year, which is a case of constructive receipt.
• Andrew performed the work in the earlier year, but since he wasn't paid or had the ability to claim the pay until January 4, there was no constructive receipt in the earlier year.

Based on these situations, constructive receipt has occurred in the earlier year for Alex, Amber, and Arnold.