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What is Constructive Receipt ?

The Doctrine of Constructive Receipt taxes income before that income is actually received. The doctrine says in part that, even though you may not have your settlement or verdict in your hand or your bank account, the fact that you could have had it if you had simply requested it, means that for all intents and tax purposes, you did have it.

The operative Treasury Regulation is § 1.451-2(a), which says:

(a) General rule. Income although not actually reduced to a taxpayer’s possession is constructively received by him/her in the taxable year during which it is credited to his/her account, set apart for him/her, or otherwise made available so that he or she may draw upon it at any time, or so that he/she could have drawn upon it during that taxable year if notice intention to withdraw had been given. However, income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.”

It's important to note that Constructive Receipt doctrine only affects your ability to obtain a tax-exempt structured settlement annuity, as part of your settlement plan.

Pointing fingerIf your preference or plan, or both, calls for you to use other financial vehicles, investments or strategies, you need not be concerned with constructive receipt. All of those other options generate taxable income. It is only the structured settlement annuity used as the foundation of a well thought out settlement plan, which has to be purchased with non-constructively received dollars.

Myths That Do Not Trigger Constructive Receipt

Myths and other things that do not trigger constructive receipt:

  • Knowledge of the cost of an Ensured Installment Sale (structured sale) annuity.
  • Knowledge of the name of the proposed Ensured Installment Sale annuity issuer.
  • Negotiating the amount to be structured.
  • Negotiating the structure design, terms and details.
  • Retaining your own Ensured Installment Sale (structured sale) specialist or settlement planner, and that individual being compensated out of fees generated by the purchase of your structured sale annuities.
  • Negotiating for all security interest in any annuities (versus being a general creditor of the annuity issuer).
  • Negotiating for multiple annuity issuers to share responsibility for your payments.
  • Negotiating for payment of your full settlement to a QSF, subject to further Court control and oversight.
  • You have been awarded a verdict, however the defendants have appealed to a higher court for review.

The Ensured Installment Sale (Structured Sale) enables you to defer your capital gains taxes and not claim constructive receipt.

To understand more fully how the doctrine of “constructive receipt” may affect your settlement and settlement plan, contact us.



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