Question

Caroline Jones has sent you a letter requesting guidance about a completed transaction. On December 31, 2016, she received a check for $5,000 from her client Ritchie Rich for consulting services. She received the check at 5:30 p.m. The 31^st fell on a Saturday in 2016 and her bank was closed when the check was received.

Caroline Jones is in the real estate appraisal business and consults clients as to the value of prospective purchase properties.

Caroline has asked you for guidance respecting when the income should be recognized for taxation.   Caroline is a cash basis taxpayer.

Not sure how o create a memo and letter to this client

Answer 1

To : Caroline Jones

From : Ricky Ponting

Re : Guidelines for recognizing income in special case

It should be noted that check received by you amounting to $5000 at 5:30 pm on 31st, shall be recognized as income for the year in which check is received by you. Because IRS rules clearly specified that if any person has received any amount in any year without any restrictions then it's recognition cannot be deferred, this holds good even in the case of check is received after banking hours as it amounts to constructive receipt of income.

Accordingly, amount received by you by way of check on 31st after 5:30 pm when banks are closed should be recognized on the same year itself for tax purposes.

Thanks and regards

Ricky Ponting