- 19 -
is not constructively received if the taxpayer’s control of its
receipt is subject to substantial limitations or restrictions.
Sec. 1.451-2(a), Income Tax Regs.; see Childs v. Commissioner,
103 T.C. 634, 654 (1994), affd. 89 F.3d 856 (11th Cir. 1996).
Generally, receipt of payment by an agent is constructive
receipt by the principal. Md. Cas. Co. v. United States, 251
U.S. 342, 346-347 (1920); Joyce v. Commissioner, 42 T.C. 628, 639
(1964); see also Burkes v. Commissioner, T.C. Memo. 1998-61. In
Gale v. Commissioner, T.C. Memo. 2002-54, funds from a lawsuit
against United Ready Mixed were paid at the taxpayer’s direction,
under the terms of a settlement agreement signed by the taxpayer,
to the taxpayer’s attorney, to be deposited into an attorney-
client trust account. The funds were placed into the trust
account pending resolution of a dispute about attorney’s fees.
However, the Court stated in Gale:
There is no need to consider the doctrine of
constructive receipt because petitioner did not delay
United Ready Mixed's payment.12 As between petitioner
and United Ready Mixed, the settlement amount was fully
paid in 1992. United Ready Mixed retained no interest
in the funds after they were paid, at petitioner's
direction pursuant to the terms of the settlement
agreement, to petitioner's attorney. Any restriction
placed on the use of the settlement proceeds after
payment by United Ready Mixed, whether the restriction
was placed on the funds voluntarily by petitioner or
through acts by petitioner's creditors, does not delay
petitioner's receipt of the income for income tax
purposes. [Gale v. Commissioner, supra; citations
omitted.]
12 “Constructive receipt” as defined in sec.
1.451-2(a), Income Tax Regs., is a legal term of art
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011