Sch C - which year's income

[Bill Tubbs]

Let's assume a Sch C taxpayer on the cash basis does some work in December 2006 but does not receive the payment for it until January 2007. Let's further assume that the taxpayer only worked for one payor during 2007 and was paid $600 or more (thus will only receive one 1099-Misc).

A) payment was mailed Jan 2007 but yet is included in the 1099-Misc (perhaps due to the company's year-end bookkeeping process) -- report the full amount of the 1099-Misc as income (to prevent a matching letter from the IRS) and then an adjusting line to back out the amount received in 2007 -- correct?

B) payment was mailed Dec 30, 2006 -- is this then considered constructive receipt (reportable in 2006) even though the taxpayer did not receive it til Jan 2007?

Bill

[Gretel]

Here are my thought:

A) I would do as you suggest. It is in fact 2007 income.

B) If payment was not received in 2006 (in mailbox or otherwise available to T/P) then it is also 2007 income.

[OldJack]

2007 RIA ¶2824 :

>>When is a check income?
A check issued by a solvent payor is income when received by a cash basis payee, unless there's a restriction on the payee's right to cash the check. <<

2007 RIA ¶2825 :

>>Constructive receipt of income.
Income not actually received is constructively received and reportable if it's within the taxpayer's control. Cash basis taxpayers must report money unconditionally subject to their demand as income, even if they haven't received it. Theres no constructive receipt if the amount is available only on surrender of a valuable right, or if there are substantial limits on the right to receive it. [Reg§1.451-2(a)].<<


Conclusion in your case? Its actually 2007 income as the payment was not under the cash basis taxpayers control and there is no constructive receipt.

[Davc]

A......................................

[Bill Tubbs]

Thank you

Thanks OldJack & Gabriele. That's what I thought but wanted some confirmation.

Bill