Amend was a company in the
business of selling wheat. The wheat was harvested and shipped to buyers
during the fall season.
However, under the terms of
Amend's contracts, the buyers of the wheat were obligated to make
payments for the wheat in January of the ensuing year.
When Amend filed their taxes,
they reported income collected in January, even though it could be argued
that they earned the money in the
fall of the previous year. The IRS disagreed and assessed a deficiency.
Amend argued that they used
the cash method of accounting.
Under that method, income is counted as it is received, not when it is
The IRS argued that because
of Amend's accounting methods, all
of their income was getting deferred one tax year, and that wasn't fair.
Amend sold their wheat in
the fall, but didn't book the sale until January which meant they didn't
have to pay taxes on that until the next April.
IRS argued that the
purchasers of the wheat were willing and able to pay cash at the time the
wheat was delivered (in the fall), so it was clear that Amend was
purposely delaying the payment, and so they shouldn't get an advantage.
It should be treated as if Amend had received the income in the fall.
Aka the Constructive
The Tax Court found for Amend.
The Tax Court found that the
Constructive Receipt Doctrine does
not obligate taxpayers to collect income as soon as possible.
Basically, just having a
payment schedule that defers compensation does not automatically mean
that the Constructive Receipt Doctrine applies.
Three factors in determining
whether there is constructive receipt:
Is the taxpayer legally
entitled to get the payment?
Does the taxpayer have the
ability to get the payment?
Has a payment has been made
to someone (like an escrow agent)?