The constructive receipt doctrine: A case study in the "donut rule"

Abstract

Constructive receipt is a doctrine that provides, in the terms of the regulations under Section 451 of the Code, that income is "constructively received" by a cash-basis taxpayer when it is "set apart for him, or otherwise made available so that he may draw upon it at any time," without "substantial limitations or restrictions." Under the doctrine of constructive receipt, if an individual can elect to receive compensation currently, he or she will be required to pay tax on that compensation currently. If the individual's control over the current receipt of compensation is subject to substantial limitations, however, the compensation should not be subject to tax under the constructive receipt doctrine.