When does giving a gift "count" for tax year?

Question

If I send a check to someone in one tax year, but they don't cash it (or receive it) until the next tax year, which tax year does the gift count against?

Answer 1

Generally it goes by when they receive the check, not when they cash the check. Though if the check was received prior to midnight on December 31st, but after the bank closes, they would probably let the tax payer decide to count it for the next year.

Of course if the check is from person A to person B then the only issue is gift tax, or annual limit calculations. If it is company to person then income tax could be involved.

The IRS calls this Constructive receipt

Income Under the cash method, include in your gross income all items of income you actually or constructively receive during your tax year. If you receive property or services, you must include their fair market value in income.

Example. On December 30, 2011, Mrs. Sycamore sent you a check for interior decorating services you provided to her. You received the check on January 2, 2012. You must include the amount of the check in income for 2012.

Constructive receipt. You have constructive receipt of income 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 treated as having received it when your agent received it.

Example. Interest is credited to your bank account in December 2012. You do not withdraw it or enter it into your passbook until 2013. You must include it in your gross income for 2012.

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

Example. Frances Jones, a service contractor, was entitled to receive a $10,000 payment on a contract in December 2012. She was told in December that her payment was available. At her request, she was not paid until January 2013. She must include this payment in her 2012 income because it was constructively received in 2012.

Checks.
Receipt of a valid check by the end of the tax year is constructive receipt of income in that year, even if you cannot cash or deposit the check until the following year.

Example.

Dr. Redd received a check for $500 on December 31, 2012, from a patient. She could not deposit the check in her business account until January 2, 2013. She must include this fee in her income for 2012.

In general it is best not to cut it close. If the check is to be counted as an January event it is best to send it in January. If it is to be December event it is best to send it early enough to be able to say with confidence that the check arrived at the destination before the end of the year.

Answer 2

Based on past case law, a check made payable to qualified charity and delivered (e.g., placed in the mail on 12/31 would count as delivered as it is out of the hands of the donor) would fall under the "constructive receipt doctrine".

However, for non-charitable gifts (e.g., gifts to family members) it is the date the check is cashed (honored by the receiving bank).

This is important as the annual gift exclusion is just that "Annual". Therefore, if I gift my child $14,000 by writing a check on 12/31/2014 but they deposit it on 1/3/2015 then I have used my annual gift exclusion for 2015 and not 2014. This means I could not gift them anything further in 2015.

BTW the annual gift amount is for ALL gifts cash and non-cash. Most people don't seem to realize this. If I give $14,000 of cash to my child and then also give them Christmas gifts with a value of $1,000 I have exceeded my annual gift exclusion to that child. Usually there are ways around this issue as I can give $14,000 to each and every person I want and if married my spouse can do the same. This allows us to give $14,000 from each of us to each child plus $14,000 from each of us to their spouse if married and $14,000 from each of us to each of their children if they have any.

Answer 3

Here I provide some references which seem to refute mhoran_psprep's currently accepted answer. The references seem to reinforce PAD's answer, although it may be helpful to clarify that in most cases, the relevant date for non-charitable gifts is when the check is deposited or presented for payment and not when it clears.

See IRS Revenue Ruling 96-56 regarding GIFT TAX regarding noncharitable gifts. The summary provided reads,

If certain conditions are satisfied, the delivery of a check to a noncharitable donee will be deemed to be complete for federal gift and estate tax purposes when the check is deposited, cashed against available funds of the donee, or presented for payment in the calendar year for which favorable gift tax treatment is sought. Rev. Rul. 67–396 modified.

More specifically,

...if a check is delivered to a noncharitable donee, for federal gift tax purposes, completion of the gift relates back to the date the check was deposited by the donee, provided the check is paid by the drawee bank while the donor is alive and:

1. the donor intended to make a gift;
2. delivery of the check was unconditional; and
3. the donee presented the check for payment in the year for which completed gift treatment is sought and within a reasonable time of issuance

[Emphasis is mine.]

For a more contemporary reference, see Top 10 Revenue Rulings Every Estate Practitioner Should Know (May 8, 2015). Essentially the same is written there:

The delivery of a check to a noncharitable donee is deemed to be a completed gift on the earlier of (1) the date on which the donor has so parted with dominion and control under local law and to leave in the donor no power to change its disposition, or (2) the date on which the donee deposits the check (or cashes the check against available funds of the donor) or presents the check for payment, if it is established that: (i) the check was paid by the drawee’s bank when first presented to the drawee’s bank for payment, (ii) the donor was alive when the check was paid by the drawee’s bank, (iii) the donor intended to make a gift, (iv) delivery of the check by the donor was unconditional, and (v) the check was deposited, cashed, or presented in the calendar year for which completed gift treatment is sought and within a reasonable time of issuance.