CPA) Which of the following is not considered actual receipt or “constructive re

Question

CPA) Which of the following is not considered actual receipt or “constructive receipt” of income in the current year? a. taxpayer A was informed his check for services rendered was available on December 15 of the current year, but he waited until January 5th of the following year to pick it up. b. a payment on a sale of a warehouse was placed in escrow on December 15 of the current year but not received by taxpayer A until Jan. 10 of the following year, when the transaction actually closed. c. earned income of taxpayer A was received by his agent on Dec 29th of the current year, but not received by A until Jan 5th of the following year. d. taxpayer B received a check on Dec 30 of the current year for services rendered but was unable to make a deposit until January 3 of the following year as his bank was closed.

Explanation / Answer

Answer is C. a payment on a sale of a warehouse was placed in escrow on December 15 of the current year but not received by taxpayer A until Jan. 10 of the following year, when the transaction actually closed.

The constructive receipt doctrine requires recognition if income is made available without significant restriction. In the case of sale of warehouse, the income is blocked in Escow account and couldnot be received until the transaction is closed which is indeed a restriction on receipt of income.

In all other cases there is no such restriction on the receipt of income by the taxpayer.

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