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Petitioner argues that its deduction should be allowed
because Doyce Gentry and his sons constructively received the
compensation by the end of petitioner’s fiscal year on July 31,
1994, and were therefore required under section 451 to include
that income when it was constructively received. Petitioner
admits that it has the burden of proof to show that Doyce Gentry
and his sons constructively received the compensation by July
31, 1994.
Section 1.451-2, Income Tax Regs., defines constructive
receipt as follows:
Income although not actually reduced to a taxpayer’s
possession is constructively received by him in the
taxable year during which it is credited to his
account, set apart for him, or otherwise made
available so that he may draw upon it at any time, or
so that he could have drawn upon it during the taxable
year if notice of intention to withdraw had been
given. However, income is not constructively received
if the taxpayer’s control of its receipt is subject to
substantial limitations or restrictions. * * *
Petitioner argues that since Doyce Gentry was petitioner’s
sole officer, director, and owner, and had sole check-writing
authority over petitioner’s accounts, he had the unfettered
ability to withdraw the compensation at any time, and thus
should be treated as if he constructively received the
compensation by the end of petitioner’s fiscal year.
Respondent notes that Doyce Gentry may have had the
unfettered ability to withdraw funds from petitioner’s bank
accounts, but he did not have the right to receive the
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