D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

Well, what you write makes sense to me, but it is contrary
to what WB wrote, which is why I asked my question.

--ron

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Ron Rosenfeld wrote:
- quote -

I think that is obvious: Properly addressed and with
sufficient postage.

- quote -

Postmark on 12/31 -> mailed on 12/31, which means that
delivery will be on the next [postal business] day, 1/2.
The recipient does NOT have constructive receipt unless it
was mailed because he failed to appear to pick it up.

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Wayne Brasch wrote:

- quote -

When the work was done doesn't matter. The 1099 reports
only the year the payment is SENT.

- quote -

No, it doesn't. If the contractor is on the cash basis,
then when he COULD HAVE received the check is relevant.
Assuming the contractor didn't have the option of picking up
the check (making in constructive receipt in 2003), the
money is only income when it reaches his mailbox. (If he
has a PO Box, and doesn't check it until January 2, that's
another matter.)

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Arthur L. Rubin wrote:

(snipped )

- quote -

All this discussion puts me in mind of one of my suppliers
(printer and copier toner). I decided to stock up before
tax season, so went by his place Dec 23rd or thereabouts and
picked the cartridges up. I didn't bring a check with me,
but did mail him one the next day.

While closing the year out yesterday I checked my bank
online and the only check that had not cleared was his.

I know he must have gotten it, since the USPS is good about
city delivery around these parts anyway. So I'm wondering,
did he get it and is not cashing it until this year on
purpose? Does he even KNOW what constructive receipt
really means?

Happy New Cheer$,
Harlan Lunsford, EA n LA

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Wayne Brasch wrote:

- quote -

Wayne, under the facts he stated, he did not receive the
check, until tax year 2004. Nowhere did he indicate that
the check was made available to him in 2003, nor that the
contractor had telephoned him to say "come get your check",
or even that they were in the same town.

If someone in another city calls me on Dec 31st and says he
has my check ready, distance alone precludes my coming to
pick it up, and therefore I am not in constructive receipt
of it.

Happy New Cheer$,
Harlan Lunsford, EA n LA

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Wayne Brasch" <waynebrasch[at]stowetel.com> wrote:

- quote -

What does "properly mailed" mean?

I am a cash basis tax payer and had a rent check mailed to
me. The postmark on the envelope is 12/31/03. I did not
receive it until 1/2/04. There is no way that the proceeds
could have been available to me on 12/31/03 as they were in
a post office hundreds of miles away!

Shouldn't I be reporting this income in 2004?

--ron

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John Caruso wrote:

- quote -

Section 6041(a) provides:

"(a) Payments of $600 or more.
All persons engaged in a trade or business and making
payment in the course of such trade or business to another
person, of rent, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or
determinable gains, profits, and income (other than payments
to which section 6042(a)(1) , 6044(a)(1) , 6047(e) , 6049(a)
, or 6050N(a) applies, and other than payments with respect
to which a statement is required under the authority of
section 6042(a)(2) , 6044(a)(2) , or 6045 ), of $600 or more
in any taxable year, or, in the case of such payments made
by the United States, the officers or employees of the
United States having information as to such payments and
required to make returns in regard thereto by the
regulations hereinafter provided for, shall render a true
and accurate return to the Secretary, under such regulations
and in such form and manner and to such extent as may be
prescribed by the Secretary, setting forth the amount of
such gains, profits, and income, and the name and address of
the recipient of such payment."

Regulation 1.6041-1 makes it clear that the calendar year is
the key, and the issue is payment *NOT* when the recipient
receives it or cashes the check. Remember, the payor really
can't know for sure when the amount would be includible in
the recipient's income--the date he/she cashes the check may
not be the date it was received and, to be completely
honest, the recipient may even be on the accrual basis. The
1099 puts the IRS on notice about potential income, but it
is not completely dispositive.

If the payor had to report in the year in which the
recipient had to report, this whole issue would be a *lot*
more complicated for the payors--as well as requiring the
payor to be able to compel the recipient to provide a lot
more information than merely an identification number. So
the IRC merely bases the reporting on when it is paid.

--
Ed Zollars, CPA
Phoenix, Arizona

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John Caruso wrote:

- quote -

Actually, I would lean toward it being deductible from the
company in 2003, and so should be reported on a 1099-MISC
for 2003.

Also consider that the company cannot KNOW whether the check
was ACTUALLY received until the check clears, which is
usually a few days after it was received. The year of
receipt is not known unless the check actually clears in
that year.

But I can't give a cite.

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John Caruso wrote:

- quote -

It will come down to whether delivery before or on 12/31 was
possible.

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"John Caruso" <johnSPAMcarAWAYuso[at]myprivacy.ca> wrote:

- quote -

First of all, let me remind you that no IRS publication
contains the tax law. They are interpretations of the law
by the IRS. The situation you ask about here is in what
year was the work performed by the contractor? Chances are
the work was done in 2003 and should be put on a 2003 Form
1099MISC by the company. The fact that the contractor gets
the check in 2004 doesn't really matter. What you read in
Publication 334 about the cash receipts method is correct,
but the money was properly earned by the contractor in 2003.
The fact that the check was properly mailed in 2003 makes it
income to the contractor in 2003 under the rule of
constructive receipt. The company can possibly deduct the
expenditure on their 2003 return while the contractor
reports that income on his 2003 return as well despite the
fact that he doesn't physically get the check until 2004.

Wayne Brasch, CPA, M. S. Taxation

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John Caruso wrote:

- quote -

The payor may indeed and will I'm sure send the 1099-misc
for 2003 and take the deduction on it's own tax return. All
good and proper.

And as you already know, the payee doesn't have to report
the income until the year the check is received. the
problem comes in matching of course, and if the amount in
question is not too terribly large, IRS will probably nevr
bother him. But if it's significant, say... 10% or more of
gross income, then I would attach an explanation to the 2004
return.

Happy New Year,
Harlan Lunsford, EA n LA

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John Caruso <johnSPAMcarAWAYuso[at]myprivacy.ca> writes:

- quote -

The proper year for reporting income depends on your method
of accounting (cash or accrual). The majority of taxpayers
filing Form 1040 use the cash method of accounting. Cash
method taxpayers report the items of income in the year in
which the income was actually or constructively received.
For cash method taxpayers, the year that the income is
earned is irrelevant.

With respect to "actual receipt," if you receive an item of
income that is paid to you by check, your receipt of that
check is taxable to you as if it were cash.

With respect to "constructive receipt," constructive receipt
occurs when the income is made available to you. For
example, you are in constructive receipt of income paid to
you by check if the check has been cut and is readily
available to you, even though you have not picked it up as
planned. Also, you are in constructive receipt of bank
interest when it has been credited to your account, even
though you have not withdrawn it.

If you are filing Form 1040 (PDF), it is unlikely that you
are an accrual method taxpayer. Nevertheless taxpayers who
use the accrual method generally report income in the year
it is earned, billed, or received, whichever occurs first.

References:

Form 1040 (PDF)
Publication 17, Your Federal Income Tax
Publication 538, Accounting Periods and Methods

HAPPY NEW YEAR - ALL!!!=

"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

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A company sends a check to a contractor on 12/28/2003, but
the check isn't received until 1/2/2004. The IRS is very
specific that if the contractor uses the cash method of
accounting, this check should be included in income for
2004--not 2003 (the relevant reference is in pub 334,
chapter 2).

However, my question is from the company's side: should the
check be included in the contractor's 1099-MISC for 2003, or
2004? I can't find any references in IRS publications that
specify one way or the other. Based on the IRS requirement
that the contractor report the income in 2004, it seems
clear that it would have to go on the 2004 1099-MISC and not
the 2003 1099-MISC. Is this actually the case, and does
anyone have a reference (preferably an IRS publication) that
clarifies it?

Thanks in advance.

- John

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