A tax doctrine that applies to cash basis taxpayers and provides that an unrestricted right to receive income is treated the same as actually receiving it. The doctrine prevents a taxpayer from deliberately delaying the receipt of income so that he can control the year in which he reports it for income tax purposes.

Treasury Regulations under Section 451 of the Internal Revenue Code (IRC) set out the constructive receipt doctrine and state that income, although not actually in the taxpayer's possession, is constructively received in the tax year in which it is either:

(Treas. Reg. § 1.451-2).

However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions.

This doctrine has been invoked in several court cases involving deferred compensation plans and the outcomes have depended on the particular facts and circumstances. Several cases have involved employee-shareholders of closely-held corporations and the analysis has focused on the level of the employee-shareholder's control of amounts deferred under the plan. In this context, if an employee-shareholder is a participant in a deferred compensation plan and, despite the payment restrictions set out in the plan, the employee-shareholder could, as a practical matter, elect to receive the compensation at any time, he may be deemed to be in constructive receipt of the deferred amounts.

Although Section 409A sets out a comprehensive set of rules governing nonqualified deferred compensation, the Internal Revenue Service has stated that Section 409A does not affect the application of any other provision of the Code or common law tax doctrine. Therefore, the constructive receipt doctrine continues to apply in addition to Section 409A. For more information on Section 409A, see Practice Note, Section 409A: Deferred Compensation Tax Rules: Overview.