Question

Adrian is a salesperson who represents several wholesale companies. On January 2, 2018, she receives by mail a commission check from Ace Distributors in the amount of $10,000 and dated December 30, 2017. Adrian is concerned about the year in which the $10,000 is taxable. Although the check is dated 2017, she contends that it would have been unreasonable for her to drive the 50 miles to the Ace offices on a holiday to collect the check. Further, Adrian maintains that even if she had made the trip to collect the check, by the time she returned home, her bank would have closed and she could not have received credit for the check until after the first of the year. Adrian would like you to determine whether she should include the $10,000 on her 2017 or 2018 tax return. §61; Reg. §1.451-1; Murphy v. U.S., 71 AFTR 2d 93-1862 (CA9, 1993); Kahler, 18 T.C. 31 (1942); Zahirdueen Premji, et ux. v. Commissioner, TC Memo 1996-304.

Answer 1

Facts of the Case:

Cheque Dated: December 30, 2017 (Saturday)

Cheque received: January 2, 2018

Argument of taxpayer: Although the check is dated 2017, she contends that it would have been unreasonable for her to drive the 50 miles to the Ace offices on a holiday to collect the check.

Issue: whether to include the $10,000 on her 2017 or 2018 tax return. This depends on when did the Andrian realize the income represented by the commission check delivered.

Was it in 2017 or in 2018?

This, in turn, is based on the question whether the receipt of a check by a cash basis taxpayer after banking hours on the last day or received after end of the taxable period constitutes a realization of income.

Case law: Kahler, 18 T.C. 31 (1942):

It was held that receipt of a check is regarded as payment and income unless it is subject to some restriction. A finding is made that the check in question was received by the petitioner ‘sometime after 5 p.m. on December 31, 1946. ‘There is also evidence that he could not have obtained cash for the check at the drawee bank but he could have deposited the check in that bank, later on December 31, 1946. There was another bank in the town and the evidence does not show whether or not he could have cashed the check in that bank after regular banking hours. Furthermore he might have made some other use of the check during 1946. For example, he might have cashed it at some place other than at a bank or he might have used it to discharge some obligation, within the year 1946. Thus the cheque was taxable in the year of 1946 instead of 1947.

As per above case study, it can be concluded that Adrian should pay should include the $10,000 on her 2017 tax return on receipt of cheque. She could have received the cheque on December 30^th 2017 even though she argued the check is dated 2017, she contends that it would have been unreasonable for her to drive the 50 miles to the Ace offices on a holiday to collect the cheque.