Mr. Stern, a cash basis taxpayer, was notified by his bank that he earned $1,193 of interest on his savings account in 2016. Mr. Stern has not withdrawn any funds from this account for eight years and did not receive the notification until January 26, 2017. Mr. Stern does not recognize the interest as income in 2016.

Question

Quizplus · Accepted Answer

As a cash basis taxpayer, Mr. Stern must recognize income when it is actually or constructively received, which in this case is when the interest was earned in 2016. The fact that he did not withdraw any funds or receive the notification until 2017 is irrelevant for tax purposes. Therefore, Mr. Stern must recognize the interest as income on his 2016 tax return.

Mr Stern, a Cash Basis Taxpayer, Was Notified by His