Tax,
Law Practice
Nov. 21, 2023
Is settling now, payment in January constructive receipt?
You have likely heard of the tax concept of constructive receipt. This tax rule only applies to cash basis taxpayers. And regardless of whether they know it, lawyers deal with constructive receipt issues all the time.
Robert W. Wood
Managing Partner
Wood LLP
333 Sacramento St
San Francisco , California 94111-3601
Phone: (415) 834-0113
Fax: (415) 789-4540
Email: wood@WoodLLP.com
Univ of Chicago Law School
Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.
For cash basis taxpayers like lawyers and most law firms, if a check arrives by year end, it is income. As a cash basis taxpayer, you normally report income when you receive it. Accrual basis taxpayers (like most big companies) generally have income when their right to the income is final, such as sending out an invoice, even though the invoice isn’t paid for some time. If the accrual basis taxpayer never gets paid, they later can write off the amount as a bad debt. ...
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