Treasury Regulations, Section 1.451 Constructive Receipt

Constructive receipt is the doctrine that taxes income before the income is actually received.

2(a) General Rule. Income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.

Significant private letter ruling excerpts from the Internal Revenue Service have further defined constructive receipt as it applies to structured settlements.

(P.L.R. 83-33035)

Disclosure by defendant of the existence, cost or present value of the annuity will not cause you to be in constructive receipt of the present value of the amount invested in the annuity.

(P.L.R. 90-17011)

Knowledge of the existence, cost and present value of the annuity contract used to fund the settlement offer…will not cause the family to be in constructive receipt of the amount payable under the annuity contract or the amount invested in the annuity contract.

NOTE: Tax laws and rulings are subject to change at any time.

By Richard B. Risk, Jr., Esq., and reprinted with expressed permission.