Saturday, April 22, 2006
The IRS recently released Information Letter 2006-0005, which provides guidance on the application of the constructive receipt doctrine in the context of the direct deposit of checks:
Generally, we consider checks income to a cash method taxpayer in the year he or she receives them unless constructively received in an earlier year. The fact that a check is issued in one year and received in another does not make the check taxable in the year issued. Checks sent through the mail are typically taken into income in the year the taxpayer actually receives them, unless the amounts are made available to the taxpayer in the earlier year. In other words, unless the taxpayer had access to or control over the check in the first year, no constructive receipt of the check occurred in the first year and the taxpayer should recognize the income in the second year when he or she actually received the check. However, if a taxpayer has the option of receiving payments by direct deposit instead of by checks sent through the mail, there may be constructive receipt of a payment on the earlier date that the direct deposit would have been made.