|Posted: May 4, 2011, 1:57 am - IP Logged|
He didn't tear up the ticket so that nobody collected. He gave it to somebody who did collect. I trust you see a clear difference between the two. The ticket was worth 400k and he was entitled to that income. He was free to give it away, but nobody had the right to take it from him. It's being entitled to the money without "substantial limitations" that constitutes constructive receipt. Simply put, it's yours now if you want to pick it up. You probably already understand constructive receipt as it applies to a paycheck you get on 12/30 and cash in January. Your employer paid you by check in December, so it's part of your income for that year even when you wait until January to cash it. It doesn't matter whether he gave the daughter the ticket or collected the cash and gave that to her.
As for actually tearing up a winning ticket, it raises an interesting question. According to the letter of the law, once you have constructive receipt you've also got the tax obligation, whether you choose to cash it in or not. If you accidentally destroyed it you should have taxable income, but you'd also have a casualty loss that's deductible, so most of the income would be offset. There's no deduction allowed for deliberately destroying your property, so according to the letter of the law the income was available to you, so you had constructive receipt.
Wikipedia has a good basic article on it: http://en.wikipedia.org/wiki/Constructive_receipt
It recounts four cases in which the IRS claimed income tax was due in one year and a taxpayer claimed it wasn't due until the following year. Courts agreed with taxpayers in all four cases, but only because the taxpayers didn't have access to the money without "substantial limitations" beyond their control. Deliberately destroying a ticket you're entitled to cash in certainly doesn't mean there was a limitation beyond your control preventing you from taking actual receipt of the income. There's always a chance a court would rule that having destroyed the ticket there would then be a substantial limitation, but I don't know if that theory has ever been tested. At the least, I'm sure you'd have to try to collect without the ticket in order to establish that there was a limitation.