Charles F. Kahler v. Commissioner
18 T.C. 31 (Tax Ct. 1952)
Kahler earned some
commissions. He received a check for the amount he was due on December
31st 1946. He did not cash the check until January 1947.
When he filed his 1946 taxes,
he left the commission out of the calculation of his gross income. The IRS assessed a deficiency.
Kahler argued that he didn't
cash the check until 1947, so it should be counted as part of his 1947 gross
Kahler argued that the bank
was closed by the time he got the check, so he couldn't possibly have
cashed it in 1946.
The IRS argued that he had
received the check in 1946, so it should be counted as part of his 1946 gross
The Tax Court found for the
The Tax Court found that
income is realized as soon as the check is received. It is irrelevant
when the taxpayer actually cashes the check.
The Court did note one
exception. If the check has a restriction (like it is post-dated and
therefore not cashable until a certain date), then the income is not
realized until the taxpayer can actually cash the check.
Basically, the check itself is
property (aka a negotiable instrument).
You could theoretically sell that check to someone else. Therefore you
have received property as soon as you receive the check, whether you cash
it or not.
Theoretically you might be
able to argue that the value of the negotiable instrument isn't as high as the face value (since people
wouldn't pay face value for a check they can't cash until tomorrow). But
Kahler didn't make that argument in this case.