Income and interest day?

Constructive receipt - you have admitted to having received the payment in 2009, so 2009 it is.

Not likely. But a judge might be having a particularly good day and if I handed you a check on a Sunday, Dec 31, the judge might say the bank being closed means you did not constructively receive it.

I disagree.

I'd think of that as actual receipt, since he actually has a valid check in his hand. It would be constructive receipt if the borrower said, "I can pay you now or after new year - what's your preference?"

What is the date on the check?

he admitted nothing. He said "if". I would think if this came in the first class mail, that "if" could go either way. ;)

Date on a check doesn't control. I imagine when I post a certain client's December checks there will be one in the month written to me for services rendered. However since he did not deliver the check before 12/31 it will just have to be a deferred asset on his books, and therefore not a valid business deduction.

What if he mailed it 12/30? He has lost control of the money then (especially if it's a bank check).

Seth

When it comes to a gift, the gift is completed when the recipient presents the check for payment. The exception to that rule is if the check does not clear due to insufficient funds or for any other reason.

If the check doesn't clear there is no gift. If the check clears, the gift was completed in the tax year it was presented for payment by the donee.

I am fairly confident that the preceding sentence can cover just about any realistic scenario that anyone can come up with (as well the overwhelming majority of the contrived, unrealistic ones).

FYI, the creation of a cashier's check by the maker does not mean the maker has absolutely given up control of the money. I know that for a fact from personal experience.

But of course, IF he did. But he didn't. I know my client(s). (grin

One time I mentioned to a client to make out my check and mail it by

12/31 so he could get the tax deduction. You know why I said to mail it. But no! He just had to drop it by the office on 12/31 in order to save the postage.

ChEAr$! Harlan Lunsford, EA n LA

you should have mailed it to yourself.

I would think that in these days of ATMs and banks that allow account holders to deposit checks by scanning them, no bank is ever really closed and unavailable anymore.

I'm not following. It the check is due Jan/1, one may mail it on Dec/

29 in order to reach on Jan/1 or Jan/2 (assuming there is at least a one day grace period to pay). But if the post office is fast then the check will arrive on Dec/31. Just because the post office is fast means that the interest has to be recorded in the previous year? I would imagine that the date on the check activates the check. So if the check is in your hand Dec/31 but the date on it is Jan/1, cashing the check should not work because the check is not yet active.

In the business example above, would the payer have a deduction the previous year, and the receiver income the next year? I imagine this sort of thing happens all the time. For example on 12/20 I enlist a company to design a website, and the company pays their employee actually doing the work on 12/31 their regular paycheck, but the website is only finished on 1/5 of the next year per the contract, and then the company bills me and I pay it. So the company takes a deduction for the salary paid as well as expenses related to building the website (such as software) the previous year, but they get income the next year Of course, this is assuming the company is on the cash basis, as opposed to accrual basis.

There must be court cases on this.

Well, in my example, the check was not DUE on any certain date. And as for "activating a check", I've never heard such a term applied to a check. The word "valid" is usually used. But if my client had actually dated the check Jan 1st, he would not have had a prior year's tax deduction for it, no matter when delivered, because the check would not have been valid. And neither would I have had income. Which would have defeated the purpose of my suggestion to him.

Certainly your website design company has payroll expense in year one. But only a purist accountant would demand that his client accrue 1/3 income in year one. That completed contract method is used mostly by construction companies. The income from a web design project wouldn't be material enough to matter. Besides, such web designer generally work on the cash basis anyways.

ChEAr$! Harlan Lunsford, EA n LA

That's why banks have a cutoff time, say 2 pm daily.

ChEAr$, Harlan Lunsford, EA n LA

I thought banks ignore a post dated check, and treat it as good.

| One time I mentioned to a client to make out my check and mail it by | 12/31 so he could get the tax deduction. You know why I said to mail | it. But no! He just had to drop it by the office on 12/31 in order to | save the postage.

It's funny; I never had a significant issue like this before. But today I received a check dated 12/30 (envelope postmarked same) for a non-trivial amount. I'm sure it will be included on the 2009 1099-MISC. I really don't care one way or the other and I'd like to keep things simple. Is there a serious downside to including it in 2009 income?

Dan Lanciani ddl@danlan.*com

The payer paid it in 2009, so it's deductible then.

But he doesn't (and can't) _know_ he has a valid check until January

4, 2010 (presuming he got the check late in the day, when the banks were already closed).

Suppose the borrower died on January 1, and his bank heard about it before it opened on January 4. The bank is allowed not to honor the check, so Salmon wouldn't have been paid in 2009.

"Please pay me now."

"Oops, I forgot my checkbook. I'll mail the check tomorrow."

Seth

But this wasn't a gift, it was a mortgage payment (or a payment to a business for services performed).

If the check is stolen, the maker might be able to get it cancelled and re-issued; but that's usually up to the bank, and therefore the make _has_ given up control (since the bank can decide not to cooperate with him).

Seth

It won't be delivered on Jan 1. (And this year, Jan 2 isn't a business day.)

Yes. It's recorded when received. Why should there be a difference between the post office delivering it on Dec 31 and the client handing it in on the same day? Either way, the business has the same check at the same time.

You might, but you'd be wrong. A bank can pay a post-dated check if it feels like it, and if you think banks spend the money to have employees read the scribbled dates on checks, think again. (How many people accidentally put last year's date on checks for a few weeks? Technically, those are all "stale", but banks tend to pay them anyway. It's always the bank's option.)

Depositing it will work because the bank won't bother reading the date, or won't care.

That can happen. (Even more easily, suppose that at 10 PM a customer in New York sends money to a business in London; it's the next day in London.)

Seth

It's the bank's option. (See the UCC section dealing with banks, explained to me by a lawyer as "The bank wins.") Typically, that's just what they do.

Seth