- 15 -
Respondent argues that WRI lacked the funds to make the principal
and interest payments, and therefore there was no constructive
receipt by Hersco. We agree with respondent.
A cash basis taxpayer such as Hersco must include in its
income amounts which it actually or constructively received. Sec.
1.451-1(a), Income Tax Regs.; see Corliss v. Bowers, 281 U.S. 376
(1930). Whether a taxpayer constructively received income is a
question of fact. Avery v. Commissioner, 292 U.S. 210 (1934);
Willits v. Commissioner, 50 T.C. 602, 612-613 (1968). There is
no constructive receipt if the payor lacks the funds to make the
payments. Estate of Noel v. Commissioner, 50 T.C. 702, 706-707
(1968); Jacobs v. Commissioner, 22 B.T.A. 1166, 1169 (1931).
In the instant case, Hersco did not receive payments of
principal or interest in cash or property. The payments existed
only as yearend journal entries in the books and records of WRI
and Hersco. Petitioners did not show that WRI had enough funds
to make the payments. WRI reported a $784,160 loss in 1988. The
mere showing of a payment on the books of WRI and Hersco does not
constitute receipt. See sec. 1.451-2(a), Income Tax Regs. We
conclude that Hersco did not constructively receive the capital
gain and interest income, and that they are not includable in
Hersco's 1988 gross income. We agree with respondent on this
issue.
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011