What is constructive receipt?

Constructive receipt is a tax doctrine holding that income is taxable when it becomes available to the taxpayer without substantial limitations, even if not physically received. For professional service firm owners, constructive receipt prevents manipulating income timing by simply not cashing checks or collecting payments.

Key characteristics

• Income available without restriction

• Taxable when accessible

• Physical receipt not required

• Prevents income manipulation

• Applies to cash basis taxpayers

• Control determines timing

Why it matters for professional service firms

You cannot defer income simply by not accepting payment you could collect. Constructive receipt rules prevent this manipulation. Professional service firm owners should understand these rules when planning year-end income timing.

Real-world example

Patricia asked the client to hold the $45,000 payment until January to defer income. The client offered to pay on December 28; Patricia declined. IRS position: constructive receipt occurred when the payment was available without restriction. Income taxable in December despite physical receipt in January. Proper deferral requires payment terms, not merely declining available payment.