Alexis, a cash basis contractor, builds a storage building for Jones. The building is completed, and the bill is given to Jones. Jones pays $60,000 in 2018. Subsequently, Jones files suit for damages based on alleged faulty construction. Alexis required to recognize $60,000 of income in 2018 based upon
I.Constructive Receipt Doctrine.
II.Claim-of-right Doctrine.

Question

Alexis, a cash basis contractor, builds a storage building for Jones. The building is completed, and the bill is given to Jones. Jones pays $60,000 in 2018. Subsequently, Jones files suit for damages based on alleged faulty construction. Alexis required to recognize $60,000 of income in 2018 based upon
I.Constructive Receipt Doctrine.
II.Claim-of-right Doctrine.
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Quizplus · Accepted Answer

The claim-of-right doctrine applies because Alexis received the payment without restriction, despite the subsequent lawsuit. The constructive receipt doctrine does not apply as Alexis is a cash basis taxpayer and recognizes income when actually received.

Alexis, a Cash Basis Contractor, Builds a Storage Building for Jones