Determine whether the taxpayer in each of the following situations is in constructive receipt of income. If not, explain when the income will be constructively received. Regan is an employee of BIF Manufacturing, earning $3,000 per month. She purchases merchandise from BIF costing $2,000 in January of the current year. To pay for the merchandise, BIF agrees to deduct $75 per month from her pay, reducing it to $2,925 per month before other withholdings.
Determine whether the taxpayer in each of the following situations is in constructive receipt of income. If not, explain when the income will be constructively received. Regan is an employee of BIF Manufacturing, earning $3,000 per month. She purchases merchandise from BIF costing $2,000 in January of the current year. To pay for the merchandise, BIF agrees to deduct $75 per month from her pay, reducing it to $2,925 per month before other withholdings.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Determine whether the taxpayer in each of the following situations is in constructive receipt of income. If not, explain when the income will be constructively received.
- Regan is an employee of BIF Manufacturing, earning $3,000 per month. She purchases merchandise from BIF costing $2,000 in January of the current year. To pay for the merchandise, BIF agrees to deduct $75 per month from her pay, reducing it to $2,925 per month before other withholdings.
Answer: see the attached file.
My question:
I don't understand why $75 is the constructive receipt of income. Regan is not receiving anything and it is not available to him. Also, why would Regan include $3,000 include in gross income? isn't it 3000-75?
Transcribed Image Text:b. Person R is in “constructive receipt of the $75 of salary" that is
applicable to the payment of the debt to the employer. In
"Latendresse, 26 TC 319 (1957)", the Tax Court held that where
income owed to a taxpayer could equalize a debt the taxpayer owes
to the same person, the gross amount of the income is taxable.
Thus, Person R should include the $3,000 earned each month while
computing gross income.
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