Freda is a cash basis taxpayer. In 2019, she negotiated her salary for 2021. Her employer...

Freda is a cash basis taxpayer. In 2019, she negotiated her salary for 2021. Her employer offered to pay her $21,000 per month in 2021 for a total of $252,000. Freda countered that she would accept $10,000 each month for the 12 months in 2021 and the remaining $132,000 in January 2022. The employer accepted Freda’s terms for 2021 and 2022.

Did Freda actually or constructively receive $252,000 in 2021?
What could explain Freda’s willingness to spread her salary over a longer period of time?

Solutions

Expert Solution

1.) No, Freda did not actualy or Constructively receive $ 252,000 in 2021 because as per her terms with the employer , she factually received $ 120,000 ( 10,000 x 12 ) in 2021. The constructive receipt doctrine cannot change actual events to "what might have been done."

2.) Freda may have expected to be in a lower marginal tax bracket in 2022. She also benefited by not having to pay the tax on the income shifted into 2022 until she filed her 2022 income tax return or made payments on estimated taxes for 2022.

ekkarill92 answered 1 year ago

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