Constructive Receipt

I would think you could have had earlier constructive receipt if you didn't create this forwarding situation.

So the date your first post office would have delivered it should be considered to be when you constructively received it. That you took action to delay that date is on you, and should not extend the receipt date.

If I understand this correctly, the January rent check was mailed in December along with a 2008 1099 that included the January 2009 rent. You probably would have received the check in 2008 had you given your "Winter Address" to the tenant, but for whatever reason you did not. Now you are debating whether the January check is 2008 or 2009 income.

If you want it to be 2008 income, do nothing. If you want it to be

2009 income, just process it as you have done in years past.

Constructive receipt means it was yours for the taking and you chose not to take it. Giving people multiple mailing addresses only confuses them and opens the door for other problems. So forwarding of your mail can be appears to me to be a reasonable practice in this situation.

Dick

I would generally agree with you. But it is not easy to determine that date with precision. We use "priority forwarding" which (for this purpose) means the mail actually does go to the first post office and is subsequently placed in a box for forwarding.

So I was wondering if there was any published guidance for this kind of situation.

I can use the contents and shipping date of that priority box -- hopefully they sent one out on 12/31. Otherwise I'll have to make different guesses.

--ron

The mess of "constructive receipt" for cash basis accounting is a good reason to elect accrual accounting from the beginning of any new activity! ;-)

Good point! I remember a thread a while back which led me to conclude that even a typical cash-basis individual taxpayer could specify accrual accounting for a business activity on the initial return for that activity.

-Mark Bole

To confirm, you're saying the IRS has audited you on multiple occasions regarding this item of income, and you've easily achieved no change to your return as a result every time.

How did you do this?

-Mark Bole

If disputing a CP2000 notice is considered "an audit", then yes.

The last time it happened (2006 tax year) I received a CP2000 from the IRS stating that their records did not match what was on my 1040 and assessing me taxes, interest and penalties for the amount. On that form they indicated that the discrepancy was due to differences in what they had for

1099 reported income and what I reported on my 1040.

I had the option of agreeing, or disagreeing.

I checked the box indicating I was disagreeing, and sending them no money.

I then sent a letter of explanation, along with a schedule reconciling the discrepancies.

The discrepancies were two-fold -- part of it was due to the constructive receipt issue; and part of it was due to the fact that some of the income on that 1099 was nominee income. So in addition to a written explanation, the reconciliation schedule, and copies of the postmarked rent-check envelopes (showing that I could not have had constructive receipt prior to Jan 1), I also sent them copies of the 1099's I had sent previously sent to my partner.

The original notice was dated Mar 3, 2008. The IRS received my response on Mar 17 and accepted my explanation on Apr 17. So it went pretty quickly.

I had a similar experience a few years previous -- On that occasion I was able to speak to an examiner in Holtsville (NY) on the phone, and we resolved everything expeditiously that way. But apparently there had been a change in policy and telephone resolutions were no longer allowed.

--ron

Could I have done that for business office rental?

Can I change to that now?

--ron

That is essentially correct.

OK -- I like that advice.

I thought constructive receipt means it is mine for the taking, whether or not I choose to take it.

As of this minute (Jan 2), I do not have access to any January rental checks.

I know what you mean about the multiple addresses problem. I just didn't know if that argument would "fly" with the IRS when having mail forwarded with regard to the constructive receipt rules.

--ron

I'm not the OP, but I would guess that in most cases a contemporaneous written record of the receipts would satisfy most examiners -- unless they wanted to go after you for some other reason.

Steve

Several years constructive receipt was argued here ad infinitum. My interpretation was, and stillis, that the IRS generally uses constuctive receipt to move income from a year that was closed into a year that is opened - but that discussion focused on lottery winnings.

When I was a consultant, my tax preparer would declare my 1099 and other income and make an adjustment for income not received by 12/31.

It appears that the issue here is the amount of the rental income to be received. Are we discussing $1500 or $15000? It makes a difference.

Do you prepare your own taxes or do you have someone prepare them?

That's a good question. It is my opinion that "reasonable" businesses practices should be acceptable.

As an aside, I recall 12/31/1982 when I was wrapping up a project for which my client's budget expired at year end. I was asked to submit a final invoice before I left the building. It was shortly after 10:30 pm that I turned in my invoice and my final report. I was leaving to meet my childbride at a New Year's Eve party. To my surprise, I was handed a check. I smiled and said "You could have mailed it to me." Now that's constructive receipt whether I liked it or not. Had he not offered me the check and stuck it in the mail instead, I would not have had constructive receipt.

Dick

Yes, that is a correspondence audit. I suspect you will need to repeat this procedure every time you get such a letter, because regardless of whatever published guidance there may be and whether or not you are following the rules correctly, the IRS computer isn't programmed to handle it.

-Mark Bole

To change your accounting method use form 3115. It seems you might have a user fee of $1500 if you do it by Feb 1.

If you correctly reported the nominee distributions, the IRS AUR program, should never have spit out a CP-2000.

I would guess you did not report that Nominee Distribution as shown in the instructions.

Clearly not worth it to me.

--ron

I have done that also. However, that method requires reporting the full amount from the 1099 on Schedule E. And then making adjustments off that amount. The property is NH, and there is a $50,000 minimum *gross* income requirement before one is liable for that tax (or even liable to fill out the forms). So it behooves me to keep my gross NH rentals under $50,000 if possible.

Probably about $4K. But there is also the issue of liability for NH Business Profits Tax (see above).

Well, today I received the Priority Mail Forwarding and there were NO rental checks. Since this came by Priority Mail, I would assume that it was sent out no later than 12/31, so it seems clear to me that no matter what the IRS says about the mail forwarding issue, I still do not have constructive receipt, and would not have had that even if the mail had not been being forwarded. "Dodged the bullet for another year".

Best,

--ron

Well, it is not too onerous, and I keep adequate records. The benefits can be significant.

--ron

envelopes for

occasions

1) Note that rent is treated differently than other receipts. Pre-paid rent is always taxed in the year received - and overrides the accounting method of the taxpayer. (However, accrual still gets its 2.5 month grace, so early receipt of rent under this method for a period within grace doesn't move the payment across tax years). 2) With regard to other items of income, that's easy: As long as the IRS sees that it's being included sometime, and the taxpayer's reason for inclusion in one period over an adjacent period is reasonable, it is generally left alone.

What are the benefits?