- 20 - that applies when payment has not been effected because of the payee's postponing payment. The term "constructive receipt" could also be used in its vernacular sense for any payment not physically received by the taxpayer. A taxpayer has “constructive receipt”, in its vernacular sense, of funds paid directly to the taxpayer's agents or creditors. The legal doctrine of constructive receipt defined in sec. 1.451-2(a), Income Tax Regs., however, does not apply to completed payments received by a payee's agents or creditors. We have used the term "taxable receipt" to distinguish between physical receipt and nonphysical receipt that the law treats as received for tax purposes. Connecticut General placed no restrictions on petitioner's use of the funds, and the payment was made to petitioner's attorneys on petitioner’s behalf at petitioner's direction pursuant to the settlement agreement. The Supreme Court has observed that client and lawyer are in “a quintessential principal-agent relationship” and that it is “appropriate to treat the full amount of the recovery as income to the principal.” Commissioner v. Banks, supra at 436. Petitioner's counsel was acting as petitioner's agent and petitioner's creditor in receiving and holding the funds. Settlement proceeds paid by Connecticut General in 2002 constitute income to petitioner in 2002. Petitioner thus had taxable receipt of the income in 2002. See Gale v. Commissioner, supra; see also Sullivan v. Commissioner, T.C. Memo. 1999-341. Citibank Interest Income Gross income means all income from whatever source derived. Sec. 61(a). Under section 61(a)(4), interest is includable inPage: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
Last modified: May 25, 2011