Constructive Receipt

Term used by Internal Revenue Service for the date when a taxpayer received dividends or other income. IRS rules say that constructive receipt of income is established if the taxpayer has the right to claim it, whether or not the choice is exercised. For instance, if a bond pays interest on December 29, the taxpayer must report the income in that tax year and not in the following year.

1. For tax purposes, the right to receive money that would be taxable and is taxable, even if receipt is postponed.
Example: Charles received a dividend check on December 20, 2004, but didn't deposit it until January 2005. The money was constructively received in 2004 and becomes part of Charles's taxable income for that year.

2. In real estate Exchanges the receipt of cash or other non-like-kind property or the acquisition of the right to use or benefit from such cash or property during an exchange transaction.
Example: Cohn entered into a delayed-exchange transaction in which his property was relinquished for property to be delivered later. As part of the transaction, a sum of money was deposited in Cohn's bank account to be used for acquiring the replacement property. Though Cohn never received this cash, the Internal Revenue Service denied nonrecognition of gain because of his constructive receipt of the money.