What is "constructive receipt" in tax terminology?

Constructive receipt in tax terminology refers to the situation where a taxpayer has access to income, even if they have not physically received it. This concept is significant in taxation because it determines the point at which income is recognized for tax purposes. If a taxpayer can control or access funds or property, the IRS considers it as if they have received it, which means it must be reported as income for the tax year.

For example, if a taxpayer is notified that a check is available for them to collect, and there are no restrictions preventing them from accessing it, they are deemed to have constructively received that income, even if they have not picked up the check yet. This principle ensures that taxpayers cannot simply delay physical receipt of income to avoid or defer tax liability.

The other options do not accurately describe the concept of constructive receipt. The choice regarding physical receipt only focuses on the actual, tangible transfer of money or property, which is a narrower definition. Describing income that is not subject to tax or a method of deferring income recognition mischaracterizes the function of constructive receipt, which strictly deals with the recognition of income based on accessibility rather than tax exemptions or deferrals.