Constructive Receipt - History

History

The Tax Court had previously addressed this issue in Hornung v. Commissioner. Paul Hornung, a football player for the Green Bay Packers, won a Corvette as a prize on December 31, 1961, for his performance in the 1961 NFL Championship Game. The game was played in Green Bay, Wisconsin, the car was kept at a dealership in New York City, and Hornung did not retrieve the car until January 3, 1962. The court decided that Hornung had not constructively received the car (income) in 1961 because, under the circumstances, it would have been unreasonable to expect him to retrieve the car on the day he won it.

The Tax Court also addressed constructive receipt in two cases, both entitled Veit v. Commissioner. In Veit I, as part of redoing his employment contract, the taxpayer agreed to defer receiving a bonus that he was owed until the next year. The Tax Court upheld the agreement over the IRS's protest because it was the result of an arm's length business transaction, not a sham to evade paying taxes for a year. Indeed, the deferral was requested by the taxpayer's employer. In Veit II, the Tax Court upheld a subsequent agreement by which the taxpayer would receive five equal payments over the course of five years, rather than the one lump-sum payment previously agreed-upon. Again, the IRS objected to the deferral, and again, the Tax Court found for the taxpayer. The deferral was requested by the employer, and the full amount of the bonus was never "unqualifiedly subject to demand or withdrawal."