Amend v. Commissioner
13 T.C. 178 (Tax Ct. 1949)

  • 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 earned.
    • 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 Receipt Doctrine.
  • 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)?