Connie - is not recognized in year 1 because the cash is...

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Connie, a cash method, calendar year taxpayer, provides consulting services on environmental matters to a wide range of clients. Connie charges Developer $10,000 for consulting services she performs in December of this year. Developer pays her $10,000 cash the following January. When must Connie recognize the income? Cash basis taxpayers include income when, it is actual or constructive receipt. Connie must recognize $10,000 as income in January when the developer actually pays. The recognition of income falls under Sec. 1.446-1(a), which, talks about income that is actually or constructively receipt. Walter v. United States, 148 F.3d 1027 (8 th Cir. 1998) caries this principle that a check is income in the year received because checks typically passes as cash. Under the cash method, income of $10,000
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Unformatted text preview: is not recognized in year 1 because the cash is actually received which is in January. Publication 334 talks about the cash method of income recognition and it states that include in your gross income all items of income you actually or constructively receive during your tax year. Even though Connie performed the services in December (year 1), it is the actual or constructive receipt of income that is the critical event for the cash method taxpayer Reg. §1.451-1(a). http://www.irs.gov/publications/p334/ch02.html#en_US_publink100025090 http://taxguide.completetax.com/text/Q11_2206.asp http://taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A %2C_Sec._1.446-1...
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