Lost rent checks

[NotEasy]

A rent collecting agent lost some rental checks from the tenants before he gave them to the landlord. The tenants said they need time to do the stop payment and so they won't give a replacement check to the landlord before the end of 2007. So should the lost rent checks be considered 2007 or 2008 income to the landlord?

[BOB W]

A rent collecting agent lost some rental checks from the tenants before he gave them to the landlord. The tenants said they need time to do the stop payment and so they won't give a replacement check to the landlord before the end of 2007. So should the lost rent checks be considered 2007 or 2008 income to the landlord?

Some people find any reason to delay paying a bill.

Constructive receipt always wants to put the burden on the receiver of funds. I personally, in this case, would not report the income until actually deposited. The money was not made available for me to collect,after they were lost.

But then you have Agency Law. Suppose you received the checks and YOU lost them, what then?

I would still not report the money as income..............................

___________________________________________
NOTE:
Anything I say should not be used in real life situations, unless you pay me first.

[ChEAr$]

Agency

Some people find any reason to delay paying a bill.

Constructive receipt always wants to put the burden on the receiver of funds. I personally, in this case, would not report the income until actually deposited. The money was not made available for me to collect,after they were lost.

But then you have Agency Law. Suppose you received the checks and YOU lost them, what then?

I would still not report the money as income..............................

___________________________________________
NOTE:
Anything I say should not be used in real life situations, unless you pay me first.

I think the fact that landlord's agent had the checks, they were therefore available to the landlord and should thus be considered income. It would be interesting to know what IRS stance on this matter would be.

[New York Enrolled Agent]

I think ChEAr$ has it right.

A line from TC Memo 2006-239: Generally, receipt of payment by an agent is constructive receipt by the principal. Md. Cas. Co. v. United States, 251 U.S. 342, 346-347 [3 AFTR 3010] (1920); Joyce v. Commissioner, 42 T.C. 628, 639 (1964); see also Burkes v. Commissioner, T.C. Memo. 1998-61

[BOB W]

That is true, but if the checks are lost before they get deposited what then? That is the real question. The TC memo assumes the checks were deposited by the agent.........

[erchess]

My Two Cents

First of all, from the tenant's point of view, he gave a good check. I think it is reasonable for him to be assured by his bank that the first check won't take money out of his account before giving another check. I would be in no more hurry to take care of the matter than this agent has been in the past when I needed a sink or toilet unclogged. In other words if my repairs have waited until the next business day because the landlord won't pay for repairs in the middle of the night, then I won't go to the bank any earlier than I normally would without this problem. And if any repair has not commenced on the next business day after I reported the need, then I will give a second check in January or February. Probably this attitude is why I have only one landlord among my clients. He takes care of his own repairs and he commences with his repairs on the day the report comes in unless he is already working on an equally dire situation of another tenant. He doesn't go to bed with repairs needing to be made unless he has reached a point where in order to proceed he needs to buy something he doesn't have and the relevant stores are closed. To me that is nothing heroic but merely his duty.

As for tax reporting the first question in my mind is whether the landlord operates on a cash or accrual basis.

If he operates on an accrual basis then the rent would (as far as I can see) be reportable in December because it was due then no matter whether it was paid. If it should later become clear that the money will never be paid then he has a business bad debt which (correct me if I'm wrong) would be deducted on the return for the year in which it becomes clear.

If he operates on a cash basis then things are as far as I can see less clear. Someone else in this thread pointed out a case in which the general rule was stated that receipt by an agent is constructive receipt by the landlord. I personally think that the assumption in that case that the check was deposited is too slender a reed to stand on unless you are going to disclose the position to the IRS. I think most people would agree that one month's rent on one property is not enough to justify risking an audit that could result in penalties for both the preparer and the client.