By Steven D. Mercatante Esq.
 
Do you know when to report a payment made to your payee? We hope so. Since 2005 the law has been clear on this point. However, since that time our tax experts have received dozens of questions about what to do, in terms of reporting, if they issue a check and it is not cashed, sometimes not even until the next tax year or calendar year. In addition, with the addition of the 409A reporting rules and the additional reporting boxes on the 1099-MISC you had better step it up; knowing what to report and when has become more important than ever.
 
The key to answering your questions comes from a little known but widely applicable legal doctrine known as “constructive receipt of income.” The following article will first examine the general rule for constructive receipt of income. See if you cannot answer your own questions after reviewing the rule. If you can’t then don’t worry you are not alone, only after the tax courts stepped in to provide further guidance has this issue become one more easily addressed. Second, we will briefly explore what the United States Tax Court decided nearly four years ago; in Millard v. Commissioner, T.C. No. 3717-04, T.C. Memo 2005-192, August 8, 2005. Finally, we will offer a few tips on how better to approach such a critical issue.