Legal Definitions - constructive receipt of income

Constructive receipt of income is a tax term that determines when a cash-basis taxpayer has received income. It happens when a person gets income that they haven't physically received yet, but they have control over it. The taxpayer is responsible for paying taxes on all income constructively received.

For example, if someone receives a check today but doesn't cash it for a year, it still counts as constructive receipt of income because they have the ability to cash it immediately. However, if someone is notified of a grant of company stock today but won't receive it until next year, it doesn't count as constructive income because it's subject to substantial limitations or restrictions.

It's important to note that businesses that follow Generally Accepted Accounting Principles (GAAP) or other methods of accrual accounting don't need to consider constructive receipt of income.

Overall, constructive receipt of income is a way for the government to ensure that taxpayers are paying taxes on all income they have control over, even if they haven't physically received it yet.