Dick Adams <rdadams[at]smart.net> wrote:

- quote -

I'll agree with you on those points, with the slight
clarification that the decedent took no steps to inform
his heirs of the existence of the ticket.

Gee, would we call that "constructive disclaimer?" <g
MTW

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CPA Joel Berry <joelDELETE[at]sugarlandcpas.com> wrote:

- quote -

Hmmm... Given the facts you presented, wouldn't you simply
elect the "alternate valuation date?" <g
A bit more seriously, I believe there are special valuation
rules that apply to interests that "lapse with the passage
of time." But I don't know whether those rules would apply
to this particular situation and/or what the result would
be.

MTW

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Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

Perhaps. I suppose had I referred to "rental agencies"
instead of "rental pools" then everyone would have agreed
with me on the tax treatment??? <g> IAE, some of these
entities refer to themselves as "pools" even though the
financial results are not, strictly speaking, "pooled."

MTW

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Stuart O. Bronstein <stu[at]lexregia.com> wrote:

- quote -

I love it! That's the most brilliant and incisive
condemnation of accrual basis accounting that I've
ever heard! <g
MTW

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"Joel Berry, CPA" <joelDELETE[at]sugarlandcpas.com> writes:
- quote -

There has been no reason for the IRS to argue constructive
receipt so far and the taxpayer only raises the issue when
that would put it onto a closed year.

As Ed pointed out earlier, it would have been interesting
if Thomas Paul had produced a sworn statement from the NJ
Lottery Commission that he would have received his winnings
if he had shown up at their offices on Dec 30th or 31st.
My suspicion is that he learned about constructive receipt
from either a bartender or a fellow patron of the bar after
he received the deficiency notice.

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Dick Adams wrote:

- quote -

I agree. I also agree that it's not income until it's claimed
by the taxpayer and paid by the state. I'll concede that there
may be unusual circumstances where IRS could successfully argue
constructive receipt, but I'll leave it up to others here to
create a scenario under which that would happen.

[ regarding expired airline tickets ]
- quote -

You'd have to convince someone that it was a capital asset and
not property used for personal puroses. I'd be hard pressed
to make that argument for a client.

Joel Berry, CPA
Sugar Land, Texas

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Michael T Wing CPA <mtwingcpa[at]yahoo.com> wrote:
- quote -

So, perhaps "pool" is the wrong term.

- quote -

Well, the owner COULD still be leasing the unit to the
agent, with the terms being what I would call a "reverse net
lease".

But I see your point. It LOOKS more like an agency
relationship.

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Seth Breidbart wrote:

- quote -

Totally different issue, because you now have a capital
asset and, unlike the lottery ticket, when you bought it you
knew that getting paid wasn't a simple matter of going to
the bond issuer and asking for your check (if it had been
that easy, nobody would have sold to you at a discount).

--
Ed Zollars, CPA
Phoenix, Arizona

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Joel Berry, CPA wrote:

- quote -

NO INCOME because you declined the prize.
In addition there is (in the case of the lottery) no trail
from your unclaimed ticket to your estate.

But this raises an interesting issue. A radio station
creates a voluntary membership club; you join the club; one
day the station holds a random drawing and awards you two
round trip airfare tickets to anywhere in the United States.
You accept the non-transferrable tickets, but are unable to
use them before they expire in six months.

There is no question that you have income from this in the
award year. Does your failure to use create a short-term
capital loss in the year the tickets expire?

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Joel Berry, CPA wrote:

- quote -

Well, you may not have income, since we are back to a smell
issue *AND* the question of whether two days were sufficient
to obtain payment. My guess is that a judge wouldn't have a
problem saying no taxable income prior to your death *AND*
no IRD income to your heirs since they did not take any
steps to evade receipt of payment (heck, they wished they
hadn't <grin> ). Remember, my position is that judges have a
real tendency here to look at the "smell" in cases like this
and then "adjust" the concept to wrap around the result they
want.

The estate tax issue is a thornier one <grin> , though I
suppose a judge could decide that the ticket was "devalued"
because you had made the ability to discover that right so
difficult that your heirs were unable to discover this
bounty until it was too late. Remember, there the judge has
the "wiggle room" of determining what is fair market value
and what exactly is relevant.

Remember, in your case no one is manipulating the system to
try and evade or "unfairly" reduce the tax.

--
Ed Zollars, CPA
Phoenix, Arizona

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Stuart O. Bronstein <stu[at]lexregia.com> wrote:

- quote -

The case in question was only around $1,000, not typically
enough to be "substantial" (doesn't that require something
like 25%?)

Seth

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Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:
- quote -

Suppose instead of a lottery ticket, I buy a defaulted bond
issued by a company in bankruptcy, for a very low price.

It turns out that the company manages to survive, finding
some assets that nobody realized were there and very
undervalued and selling them, and it pays off the bonds at
face amount. This is an old bond, so I actually bought
paper (as opposed to current, book-entry-only bonds.)

I wait until I feel the tax treatment will be optimal (long
term capital gains, tax rates are lowered, etc.) before
turning it in and getting paid. When is taxable receipt?

Suppose the company announced that it would pay interest on
the matured bonds until they were turned in; does that
affect the result?

Seth

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Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

You raise a very interesting point. I have ~heard of~ rental
pools where ALL participating owners receive a cut of the
action regardless of whose unit is actually rented. However,
that is NOT the case in any of the instances to which I'm
referring.

In all cases under discussion, the owner receives absolutely
nothing unless HIS unit is actually rented. And, the amount
he receives is the exact gross amount of the rental, less
applicable room taxes (if any), less cleaning, less repairs
in excess of any damage deposit collected from the tenant,
less condo dues (if applicable), less moorage fees (if
applicable), etc. And, of course, less the agent's
commission expressed as a percentage of the gross. All of
these amounts are fully documented on the owner's monthly
statement and copies of applicable receipts for repairs or
other disbursements are attached.

I am not aware that any of these deals impose any
limitations on the owner's ability to use the unit
personally at any time, save only that adequate notice be
given. And, there is no charge by the agent with respect to
the owner's personal use (save for cleaning fees should the
owner request same).

There have been a few instances of significant damage caused
by tenants. In all instances that I'm aware of, the "agent"
disclaimed any responsibility for costs beyond the amount of
the damage deposit collected on the owner's behalf. In one
instance, I recall that the owner engaged in a fruitless
letter-writing campaign in an attempt to recover damages
directly from the tenant.

Do any of these things sound like your typical
"landlord-tenant" relationship as between the owner and the
purported agent? <g
MTW

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Michael T Wing CPA <mtwingcpa[at]yahoo.com> wrote:

- quote -

You'd be right if the "agent" was an employee. But as an
independent business person he may not have the same
obligations as a true common-law agent. Could you client
call up on December 29 and demand their money immediately,
rather than waiting another two weeks? If not, I'd say
there's no constructive receipt.

Stu

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Michael T Wing CPA wrote:
- quote -

I'm not an expert, but I think this "agent" is not really an
agent. It could be argued that the owner is leasing the
unit to the pool, with the rent specified as sublet rent
less expenses.

That would make the correct 1099 amount the NET expenses,
exactly what you complain about later. It also would
includethe time the unit is in the pool and not subrented in
the time the unit is "rented" for IRC 280A compliance.)

Clearly, though, this is a highly fact-based problem.

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Dick Adams <rdadams[at]smart.net>  wrote:

- quote -

I suspect the courts will take a very different view of a
case in which a taxpayer attempts to avoid tax based on the
statute of limitations.

I wonder why the IRS wouldn't just argue that, even if it
had been a closed year, the failure to report in that year
would have been a substantial understatement of income,
allowing for a longer statute of limitations?

- quote -

Based on the contructive receipt cases I've read, I would
tend to agree. But those cases are ones in which the IRS is
claiming constructive receipt rather than the other way
around.

- quote -

Not December 20, perhaps, but if the normal time is a week
from mailing, I'd think there'd be constructive receipt
before January 1.

- quote -

really exist, even if you think it does. Well, unless
you're on an accrual basis, I suppose.

Stu

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Seth Breidbart wrote:

- quote -

In the cases that Dick cites, the real problem is that the
taxpayer is arguing that there was no substantial limitation
on their ability to get paid by the end of the preceding
year. However, in reality, the taxpayer did not *actually*
get paid until the following year. The problem for the
taxpayer is coming up with a plausible reason for why that
managed to happen--and to remember that the why has to not
fit the test for being an arguably substantial limitation
(burden being on the taxpayer asserting the issue in this
case, let's remember).

The only answer I can think of is I was just lazy
<grin> --and that doesn't generate a lot of sympathy,
especially since the judge suspects that had you discovered
that it would have been to your benefit to have reported
this amount in year 2 you would arguing exactly the
opposite. Very simply, if you are right (you could have been
paid in year 1 with little effort) the you should have
gotten your payment and this case shouldn't be in front of
the judge. So the judge isn't likely to bail you out.

In the reverse case, the IRS has no such problem since they
can offer a plausible reason for the delay that wouldn't
involve the substantial limitation issue--tax motivation.
Now it's up to the taxpayer to show they would have to have
taken extraordinary steps to get paid by year end.

--
Ed Zollars, CPA
Phoenix, Arizona

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Stuart O. Bronstein wrote:

- quote -

My point as well--especially if the taxpayer on January 2
actually *did* drive those 68 miles and personally present
the ticket for payment. As I note, these are all *smell*
cases and, like the substance over form doctrine (where the
taxpayer was fully in control of the form), constructive
receipt is a very difficult issue for a taxpayer to assert
successfully.

--
Ed Zollars, CPA
Phoenix, Arizona

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{ snip }

- quote -

{ snip }

That's an extreme exaggeration of my contention. This most
recent go round was prompted by the question of someone
winnning a lottery in June and waiting until July to turn
in the winning ticket to get the lower withholding rate.

My contention has always been that lottery winnings and prize
awards are generally taxable in the year of receipt as opposed
to the year of the drawing.

I also have contended that it is the winner who wants to claim
constructive receipt in a year that is closed for auditing
and the IRS argues against constructive receipt and the IRS
has prevailed in the three cases I have found (Thomas Paul,
Paul Hornung, and Aldrich Ames).

Interestingly the winner of $112 million in the Mega Millions
lottery drawing on June 20th waited until July 2nd to turn
in her ticket. She was a part-time postal worker who had
asked her employer for more hours and felt obligated to
work the additional routes before cashing in. What if this
had been December 20th - January 2nd instead? I say she
would have January 2nd income. Almost everyone else
(including et tu Mike) have effectively agreed with you that
it would be December 20th income.

Noting that almost all answers to tax questions are based
on facts and circumstances, the facts and circumstances
do not support December 20th income.

Dick

P.S.: In January, I received an e-mail notice that I had won
$20 million in the Nigerian Lottery. It was from an
officer of the bank where the money had been set aside
for me. A few weeks later I received a follow-up e-mail
offering to wire transfer the funds to my checking
account. But, I'm waiting for another tax cut. <G
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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

OK, let's keep playing.

- quote -

Suppose that on January 2, he had driven over and gotten his
winnings paid on the spot. Should he then have won the
case?

- quote -

Suppose he'd managed to do it without even taking the day
off from work; would that help?

Seth

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