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From: garys@bunkerb.UUCP (Gary Samuelson)
Newsgroups: net.taxes
Subject: Re: deferred income?
Message-ID: <266@bunkerb.UUCP>
Date: Wed, 7-Dec-83 10:31:38 EST
Article-I.D.: bunkerb.266
Posted: Wed Dec  7 10:31:38 1983
Date-Received: Fri, 9-Dec-83 07:26:20 EST
References: rocheste.4068
Lines: 31

----- News saved at Wed Dec  7 10:08:41 1983

The date income is considered to be received depends first on
whether you use the accrual or cash method.  'Accrual' means
that income is considered to be received as soon as it is
earned.  You do not have a cash asset, but you have an account
receivable, which is an asset.  As an asset, it can be sold to
(for example) a collection agency.  (That's just to demonstrate
that a receivable is an asset; not a recommendation.)  Conversely,
expenses are deemed to occur, under accrual methods, when the are
incurred.  For example, you order and receive something in December,
but you don't pay the bill till January.   Under accrual systems,
the expense occurred in December and is deductible for that year.
Under cash systems, the expense occurred in January and won't be
deductible until the next year.

Under cash systems, expenses and income occur when money changes
hands.  Income is deemed to occur when it is 'constructively
received', which essentially means that you now have control over
it.  When you receive a check, you have control over the funds
represented by the check; thus you have constructively received
it, and you can't defer the income simply by refusing to cash
the check until January.  You would have had to get your client
to keep the check until January.

One exception I can think of to the principle that receiving
a check is 'constructively receiving' income:  if you attempt
to cash the check, and it bounces, then you might be able to
argue that you had not received the income.

Gary Samuelson