Compare and contrast the constructive receipt doctrine and the assignment of income doctrine.In what situations do these doctrines apply? What tax planning strategies does each doctrine limit?

Question

What will be an ideal response?

Answer 1

The constructive receipt doctrine limits income deferral (i.e., the timing strategy) for cash-basis taxpayers. Unlike accrual-method taxpayers, cash-basis taxpayers report income for tax purposes when the income is received (in the form of cash, property, services, etc.). The cash basis affords taxpayers some leeway in timing when to recognize income because, to some extent, taxpayers can control when they receive income (e.g., by accelerating or deferring billing their clients). The constructive receipt doctrine provides that a taxpayer must recognize income when it is actually or constructively received. Constructive receipt is deemed to have occurred if the income has been credited to the taxpayer's account or if the income is unconditionally available to the taxpayer, the taxpayer is aware of the income's availability, and there are no restrictions on the taxpayer's control over the income.
The assignment of income doctrine requires income to be taxed to the taxpayer that actually earns the income. Merely assigning income (e.g., someone's paycheck or dividend) to another taxpayer does not transfer the tax liability associated with the income. The implication of the assignment of income doctrine is that to shift income to a taxpayer, the taxpayer must actually earn the income. Thus, the assignment of income doctrine limits the income-shifting strategy. Compared to the constructive receipt doctrine, which affects when income is taxed, the assignment of income doctrine affects to whom the income is taxed.