Constructive Receipt Defined

Anyone who earns money by any means must pay their taxes. Remittance of taxes is supposed to be done regularly. That set time schedule when income must be taken is called the constructive receipt. Constructive receipt is determined by when the recipient of the income had control over it.
For example, I get paid for a service I render (let’s assume it’s website designing) at the end of January. Cheque was issued to my name. However, I hold off encashing or depositing it until February. That will be accounted for on January because the company that paid me issued the cheque on January regardless of when I deposited or encashed it.
Another example is when I get a dividend from a business. Let us say the company sent it to me via snail mail and it was from overseas. Even if I get it the next month, it is credited to the company on the month it was sent.
In effect, the Doctrine of Constructive Receipt taxes income the minute it was sent, regardless of when you received it or used it.
The operative Treasury Regulation is § 1.451-2(a) states:

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.

The Constructive Receipt doctrine only affects your ability to obtain a tax-exempt structured settlement annuity, as part of your settlement plan.
If you have multiple sources of income, either through work, structured settlement, trust, dividends and eve inheritance, you need to be concerned with constructive receipt. Remember that any income of any form needs to be filed. Even if it is not taxable, such as structured settlement, you need to be aware of how constructive receipt will affect it.