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That check is taxable, whether or not you cash it.
March 11, 2010
An Illinois man got a $16,987 check for doing some subcontract work for a "long-time friend and colleage" in 2006. He got a 1099 that included the check, but he says he didn't get around to cashing it until after year end, so he left it off the return. The Tax Court yesterday said that didn't work:
Petitioner does not dispute the total amount of the compensation, but he does dispute that the final payment of $16,987 was received in 2006. Petitioner concedes that the check bore a December 2006 date but contends that he did not, and agreed not to, cash the check immediately...Petitioner provided no evidence beyond his own testimony of the purported agreement with MPC not to cash the check. He did not call his long-time friend and colleague or any other person as a witness to corroborate his testimony about the purported agreement. Petitioner agreed that there was no reason to believe the check would not be honored...
In conclusion, the Court finds that petitioner has not shown that there was an agreement not to cash the check in 2006 even though the check was received in 2006. Accordingly, petitioner received $16,987 in unreported nonemployee compensation in 2006, and respondent's determinations are sustained.
The Moral: If you get the check, you get to pay the tax.
Cite: Morgan, T.C. Summ. Op. 2010-29.
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Comments
Joe,
Is it taxable to the recipient if there wasn't enough funds in the payor's bank account to cover the check until the next tax year?
It seems that if the taxpayer had shown that the check would have bounced in December but not in January, he would have prevailed.
We sometimes get checks that clients ask us to hold, usually because they don't have sufficient funds in their accounts at the time they give us the check.
Posted by: Peter | March 11, 2010 5:35 PM
Peter, there appear to be circumstances where it wouldn't be taxable -- they implied as much in the opinion -- but in this case there was no such evidence here.
Posted by: Joe Kristan | March 12, 2010 6:59 AM