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A check bears a December 2023 issue date. I receive it in the mail in January 2024 and deposit it in January 2024. I operate this business on a cash accounting basis (not accrual), so what do I do for taxes?

  1. Claim it in 2024 because that's when I got it.
  2. Claim it in 2023 because that's when it's dated.

The problem with choice 1 is that they will likely issue a 1099 for 2023 and so it might look to the IRS like I neglected to claim it. But if I choose choice 2, am I then not being honest about my 2024 earnings, when my bank shows a deposit that isn't claimed?

5 Answers 5

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When you deposited the check is not important. Because if that was true and you knew the tax rates were going down significantly in January you could hold all your December checks and maybe even your November checks until January.

What is important is when you had access to the money, and in the case of the check when you could have deposited the funds. Keep the envelope to show the postmark, and note when it was received.

The problem with 1 [claim it when you received it] is that they will likely issue a 1099 for 2023 and so it might look to the IRS like I neglected to claim it.

It is possible that they mailed it in plenty of time, but the mail didn't get it to you as fast as they planned. That is why you document when it was received.

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  • It may or may not work at audit (keeping the postmark to prove it was backdated), but if it was mailed in 2023 then I believe you're in the wrong with this advice.
    – littleadv
    Mar 17, 2023 at 15:35
  • I'd be more confident in this answer with a reference or two. "Taxable events" is what matters. Is receiving a check a taxable event, or depositing it, or something else? For general sales, I'm under the impression that it's a little loose, not exact.
    – user26460
    Mar 18, 2023 at 1:55
  • @user26460 the argument here is between "receiving it" and "it being sent", definitely not "depositing it" since that is entirely under the OP's control.
    – littleadv
    Mar 18, 2023 at 2:12
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Quoted from https://www.irs.gov/pub/irs-wd/06-0005.pdf (2006):

Generally, we consider checks income to a cash method taxpayer in the year he or she receives them unless constructively received in an earlier year. See Lavery v. Commissioner, 158 F.2d 859 (7th Cir. 1946). The fact that a check is issued in one year and received in another does not make the check taxable in the year issued. See McEuen v. Commissioner, 196 F.2d 127, 130 (5th Cir. 1952). Checks sent through the mail are typically taken into income in the year the taxpayer actually receives them, unless the amounts are made available to the taxpayer in the earlier year. See Avery v. Commissioner, 292 U.S. 210 (1934); Rev. Rul. 76-3, 1976-1 C.B. 114; Rev. Rul. 73-99, Macro Form (Rev. 6/1999) Department of the Treasury - Internal Revenue Service 1973-1 C.B. 412. In other words, unless the taxpayer had access to or control over the check in the first year, no constructive receipt of the check occurred in the first year and the taxpayer should recognize the income in the second year when he or she actually received the check. However, if a taxpayer has the option of receiving payments by direct deposit instead of by checks sent through the mail, there may be constructive receipt of a payment on the earlier date that the direct deposit would have been made.

A taxpayer should report income in the correct taxable year even if that conflicts with information on a Form 1099.

The document is a letter from a Christopher F. Kane, Branch Chief, Branch 3, (Income Tax & Accounting) with the material identifying the recipient redacted.

My emphasis in bold is added. Branch Chief Kane establishes the basis of the question (something to do with an annuity), then gives the standard quote from Publication 538 given in other answers. He then wrote the above quote.

Note that in it he comes as close as one can to stating that a check IN the mail (my emphasis) is not constructively received until... received and adds mention that if one had the option of receiving it by direct deposit during the earlier year, then it would have been constructively received.

Hence, unless there was that option (and he does not go into far-fetched options like driving somewhere to pick up the check), the income was constructively received in the latter year. In addition to not even bothering with mentioning driving to physically pick up the check, he does not bother addressing whether one has a duty to ask for direct deposit of the check rather than taking whatever normal business practice choice the vendor makes.

I grant that he is answering a question whose context is an annuity and therefore almost certainly a large company making the payment and therefore almost certainly at least the good chance direct deposit was available, and so mentioning that mechanism for physically receiving the money before the year was physically over (versus such things as driving somewhere, possibly even whole states away).

That leads to the limb I shall go out on, that of suggesting that any audit (which did not turn up outright fraud or fakery thereby tainting any explanation of any point raised with the thought that said explanation had a good chance of being further lies) would probably rely upon a "facts on the ground" approach. Read any of the IRS audit manuals for auditors (available on their website if you root about for a while) or go through some audits and you'll see they are pretty reasonable in their approach and "factfinding." The limb then, is that I don't believe you'd be held somehow at fault for not asking if you could "drive over" and pick the check up, or that you'd be held to have constructively received the money simply because you never even asked the payor and so maybe you could have driven over.

Also, remember the last line from the extracted quote above, that of reporting in the correct year even if in conflict with an issued 1099. This is the instruction of a practical set of people, not a set of purists for whom nothing in life is permitted to be "messy."

Once a check is physically in the mail, you have no practical or legal access to or control over the check.

However, I will say that if you have collected payments from that payor in the past by physically showing up and taking possession of a check, etc., then probably you should declare it as the earlier year's income. The defining idea in saying so would be that your, and their, normal range of practice defines whether the mailing was an election you made attempting/hoping to shift the income, or was just part of normal business practice for the pair of you.

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  • You're omitting this though: "However, if a taxpayer has the option of receiving payments by direct deposit instead of by checks sent through the mail, there may be constructive receipt of a payment on the earlier date that the direct deposit would have been made". We don't know if that is an option the OP has. In addition, this is not a legally binding guidance or precedent. This is not something the OP can rely on in audit. But kudos for finding at least somewhat relevant basis for the argument.
    – littleadv
    Mar 18, 2023 at 2:07
  • @littleadv, it seems to me that the three court cases cited in the quote do constitute precedent.
    – Mark
    Mar 18, 2023 at 2:46
  • @Mark these citations clarify the definitions, they're not specifically relevant to the scenario. Only the last one is relevant (several revenue rulings that I didn't read), but Baxter is later and thus supersedes them and is more relevant.
    – littleadv
    Mar 18, 2023 at 2:48
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You always record a payment to you when you receive it. The only exception is paychecks which are dated on the same day as the check was issued.

So, in your example the money is recorded as a credit in January.

The 1099 is meaningless. What some joker reports as having paid you may or may not correspond to reality and the IRS knows this.

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  • 1
    This is absolutely incorrect for US taxes. You recognize taxable income when you're entitled to it, which is the date on the check. Unless you can prove that it was backdated, the correct year is 2023.
    – littleadv
    Mar 17, 2023 at 15:26
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    @littleadv: "You recognize taxable income when you're entitled to it" No. Being entitled to money does not mean it is actually or constructively received. The other side could have not paid it even though they are supposed to. Or the other side could have paid it in such a way that you could not have access to or control over it until the new year.
    – user102008
    Mar 17, 2023 at 16:22
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    @littleadv You have misconstrued the rule. The rule is that the funds are credited when the recipient CONTROLS the funds, not merely becomes entitled to them. In the case of a check, control occurs when the check could first be practically received (which is the day when it arrives in the recipients mailbox). Mar 17, 2023 at 16:22
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    @FiveBagger that's not true, nothing in the constractive receipt rule says anything about "being in control", and the IRS explicitly says you don't have to be in possession.
    – littleadv
    Mar 17, 2023 at 17:41
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    Reading these comments it seems that a link/citation would be great. I’m not picking sides, just imagining this particular issue would have a clear answer within the tax code. Mar 17, 2023 at 22:01
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The income is taxable when it is actually or constructively received. However, the concept of constructive receipt is sometimes complicated.

Consider the 1987 case of Baxter v. Commissioner of Internal Revenue. Baxter received a check in January that was dated December 30. The Tax Court originally ruled that the income was taxable in the old year, because Baxter "could have" driven to the payer to pick up the check in person, in December, rather than have it mailed to him.

However, the 9th circuit reversed. The reason what that Baxter would have had to drive 80 miles round-trip to the payer to pick up the check, and since December 30 was a Saturday, he wouldn't have been able to access funds from the check from a bank until January anyway. These things effectively prevented him from accessing the funds in the old year.

I don't know what the facts are in your case. Did you know in December that the person was writing a check to you? And if so, could you have driven over to pick up the check in person instead of having it mailed to you? If they would have let you pick it up, and it would have been practical for you to pick it up, and it was early enough in December that you could have accessed funds from the check in December, then it could be argued that it should count as the old year's income. On the other hand, if they wouldn't have let you pick it up, and mailing was the only option, or if they didn't notify you about sending you a check, then it would be clear that it counts as income in the year that the mail was delivered (or attempted to be delivered, in some cases).

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  • This would only become clear in audit, which would inevitably happen due to the 1099 mismatch. I've mentioned this edge case in my comments (and added it to my answer now), but it's not a counter-example to my answer, if anything - it proves its correctness. Does the OP want to go to tax court over this? Is the 9th circuit precedent relevant to the OP? Does he want to spend time and money on an avoidable audit? Good luck.
    – littleadv
    Mar 17, 2023 at 22:49
  • @littleadv no, the OP would not like to be audited. That's why the OP is asking for clarification
    – nuggethead
    Mar 18, 2023 at 1:04
  • @nuggethead the discrepancy between a 1099 and your tax return (colloquially called "matching error") is very likely to trigger an audit since the income will not be mentioned on your tax return. Even if my answer is completely wrong for your specific situation, you'll still likely have to deal with an audit to present your case to the IRS.
    – littleadv
    Mar 18, 2023 at 2:09
  • It's interesting to see this answer being upvoted while my answer is being down voted into oblivion. Shows how little comprehension people here have and how easy it is to fool them. This answer says exactly the same thing as my does, just makes it easier for the op to feel better about themselves when they inevitably do what they already decided to do
    – littleadv
    Mar 18, 2023 at 23:24
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TL;DR: The situation is not as trivial or clearcut as the other answers are trying to present it. This is not the first time that my answers are downvoted because people don't like the reality, but the OP needs to decide what they're going to do, not what they like to hear.

The question presents very little actual facts and zero background. We don't know when the check was issued, when it was mailed, when it was received, what other alternatives the OP had, what other transactions with the same payer the OP had, what their contract states, etc. Basically, the OP presented the question without any meaningful information to have it answered categorically.

While the other answers are trying to do exactly that with zero basis and a lot of assumptions, I'm trying to present what the actual law says. If anyone wishes to downvote me because they just don't like the reality it is your right of course, but if there's any factual disagreement to my interpretation even after explaining why the answer is what it is - please don't feel ashamed to show your ignorance in the comments.

If the OP wants an opinion upon which they can rely in audit, they need to hire a licensed tax professional (EA or Attorney/CPA licensed in their State).

I've tried to incorporate my responses to some of the negative comments to this answer, it looks like the comments section is being actively edited by the moderators for some reason.


The IRS talks about "constructive receipt" in Pub 538:

Constructive receipt.

Income is constructively received when an amount is credited to your account or made available to you without restriction. You do not need to have possession of it. If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations.

Notice the highlighted portion. A check to your order is "amount ... made available to you without restriction". A check is an unrestricted obligation. So generally you recognize the taxable income when the check is issued. If you claim that the obligation is in fact restricted, then you'll have to prove it (see some examples for such cases below).

The IRS even explicitly adds this tip:

You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. You must report the income in the year the property is received or made available to you without restriction

The point of constructive in the constructive receipt doctrine is that the IRS understands that you have not technically gotten the money yet. But the IRS also understands that you could have. And proving that you could in fact not becomes your responsibility.

There's a good reason for this, several actually.

  • The payer has deducted this amount from their income when paid, so they took a deduction in this scenario in 2023. The receiver intends to recognize the income in 2024. The government wants its pound of flesh, and this combination leaves the government without the revenue for the year. The constructive receipt doctrine is specifically intended to address this gap: you can't play with dates so that one side deducts in one year and the other recognizes income in the next year, leaving the government holding the bag.

  • Additional abuse vector would be claiming "I lost it", "Didn't get it", "was in the mail", "dog ate it", etc., and people would try to shift income between years. This is what the OP is trying to do. It may be true that the check was in fact in the mail, but it's between the payer and the receiver how the payment is made. The OP could have demanded it to be a wire transfer, he could have demanded the check mailed overnight, or go pick it up, etc. This is negotiable between parties and should have zero effect on taxes.

  • One last comment was that this is similar to accrual basis whereas the OP is cash-basis taxpayer. That's an excellent comment because it is correct - the constructive receipt doctrine is essentially forcing accrual basis accounting. But that's irrelevant because the doctrine is specifically for cash-basis taxpayers, for accrual-base taxpayers that would just be business as usual.

You may be able to get away with reporting it in the next year if the check was dated in December 31st or something similar, even that may be in audit. If the payer reports the payment on a 1099 and you do not report it - it is nearly guaranteed that your return would be examined due to the matching error. How much that would cost you and whether you will succeed in convincing the IRS in your correctness is yet to be seen.

There are two citations presented in other answers, which may be relevant, but not match exactly the case described here:

  • Baxter v Commissioner: a 9th Circuit precedent dealing to a mail delivery delay. This case talks about a very specific situation (check mailed on Dec. 30th, significant distance to go pick it up), and in that case the taxpayer reported the income first and asked for refund later - which is not what the OP is trying to do. If the OP is under the jurisdiction of the 9th Circuit and is in a similar situation - the OP can argue similarly. The 9th Circuit precedent is not binding elsewhere, but the IRS might agree to adhere to it everywhere as they routinely do in similar situations. The OP will need to have their CPA/EA/Attorney analyze their situation to determine if this is relevant to them.
  • IRS public letter 2006-0005: This is not even a PLR, it's just a communication from someone in the IRS to someone (redacted) about a very specific situation not relevant to the OP (regular annuity payments). That letter also (similarly to Baxter) mentions the constructive receipt and some potential edge cases and exceptions for it. The poster of the answer relying on that letter fails to mention that the letter also explicitly says that the portion the poster of that answer chose to quote is conditioned on some context which the OP hasn't presented and probably (given we're in the modern times) exists.

What both answers fail to consider is that these are exceptions from the rule and are presented as such. The whole point of the taxpayer going through Tax Court and then again through a 9th Circuit appeal is because the constructive receipt doctrine exists, and is being actively applied.

So while the OP may in the end prevail against the IRS for their specific case, and maybe even create another precedent, the OP needs to understand that (a) it's not at all a given, and (b) will be very expensive.

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  • 5
    I'm not certain I understand, or agree with your interpretation. If the physical check is sitting in a processing center or on a mail truck, then it is not available to me. I don't even know it exists yet. This is not an example of me holding or postponing taking possession. If the final sentence of your answer is valid, I should report the income when the property is received, not on the issue date.
    – nuggethead
    Mar 17, 2023 at 16:06
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    @nuggethead the tax liability arises when you become entitled to the money, not when you deposit the check. I know it sounds unfair and counter-intuitive for otherwise a cash-basis taxpayer, but that's the way it is. "Made available to you without restriction" is when the check is issued. You may be able to defend your position if the check is dated on Dec. 31st and such, but even then the discrepancy may trigger an audit, and if there's a major tax benefit to you - the IRS may not accept your interpretation.
    – littleadv
    Mar 17, 2023 at 17:42
  • @littleadv "This is what the OP is trying to do." As the OP, I can say .. No, this is decidedly NOT what the OP is trying to do. The OP is expecting a significant payment for a project right around the end of the year. Which year the income appears as taxable matters a lot for the OP's taxes, and so the OP is asking this question NOW to understand what the implications might be.
    – nuggethead
    Mar 18, 2023 at 1:04
  • @littleadv so how would this work in the even that say, I wrote you a check in December, then held onto it for a month and sent it to you in January? Is it still “available” to you when it’s sitting for a month on my desk? Mar 18, 2023 at 1:10
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    Actual references? You've already provided the only reference needed: Pub 538. The disagreement here turns on your misinterpretation of "made available to you without restriction." It is patently obvious that if the OP does not have the check in hand, the funds have not been received. Constructive receipt would only come into play here if the OP took some active role in delaying issuance or delivery of the check. Adding imaginative "what-ifs" can be entertaining, but you should stick to the facts as presented in the question. Your answer is completely wrong, as @Jeorje above has shown.
    – MTA
    Mar 18, 2023 at 12:32

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