Question

Compare and contrast the constructive receipt doctrine and the assignment of income doctrine. In what situations do these doctrines apply? What tax planning strategies does each doctrine limit?

Answer 1

Compare and contrast the constructive receipt doctrine and the assignment of income doctrine. In what situations do these doctrines apply? What tax planning strategies does each doctrine limit?

The constructive receipt doctrine limits income deferral.ie the timing strategy for cash method tax payers.Unlike the accrual method tax payers cash method tax payers report income for tax purposes when the income is received in the form of cash ,property,services etc.The cash method affords tax payers some leeway in timing when to recognize income becuase to some extent tax payers can control when they receive income ie by accelerating or deferring billings thier clients.The constructive receipt doctrine provides that a tax payer must recognize income when it is actually or contructively received.Constructive receipt is deemed to have occured if the income has been credited to the tax payers account of if the income is unconditionally available to the tax payer,the tax payer is aware of the income availaibility and there are no restrictions in the tax payers control over the income.

The assignment of income doctrine requires income to be taxed to the tax payer that actually earns the income.Merely assigning income ie someone paycheck or dividend to another tax payer does not transfer the tax liability associated with the income.The implications of the assignment of income doctrine is that to shift income to a tax payer ie to employ the sifting strategy the tax payer must actually earn the income.