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Emily is a cash-basis taxpayer, and she was an especially productive salesperson last year. In December...

Emily is a cash-basis taxpayer, and she was an especially productive salesperson last year. In December of last year her supervisor told Emily she had earned a $5,000 bonus. However, Emily received the bonus check after year-end. Identify the principle that will determine when Emily is taxed on the bonus.

A. ASSIGNMENT OF INCOME

B. CONSTRUCTIVE RECEIPT

C. RETURN OF CAPITAL PRINCIPLE

D. WHEREWITHAL TO PAY

E. ALL OF THESE CHOICES ARE CORRECT

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Answer #1

B. CONSTRUCTIVE RECEIPT

For federal income tax purposes, the doctrine of constructive receipt is used to determine when a cash-basis taxpayer has received gross income. A taxpayer is subject to tax in the current year if he or she has unfettered control in determining when items of income will or should be paid.

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