Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 76-3

1976-1 C.B. 114

Section 451

IRS Headnote

Severance pay not received in the year mailed. Severance pay sent by certified mail that could not be delivered when attempted on December 31, 1974, as the payee was not home to sign the requested return receipt, was constructively received and includible in the calendar-year payee's 1974 gross income.

Full Text

Rev. Rul. 76-3

Advice has been requested regarding the taxable year of inclusion in gross income of severance pay received by an individual under the circumstances described below.

The individual, who uses the cash receipts and disbursements method of accounting and files Federal income tax returns on a calendar year basis, elected to receive severance pay following abolishment of the individual's position. The employer, following its usual practice, sent the payment to the separated employee by certified mail with return receipt requested. The individual was not at home on December 31, 1974, when the Postal Service attempted to deliver the certified letter containing the payment. An employee of the Postal Service left a Notice of Mail Arrival or Attempted Delivery indicating that the certified mail had arrived and could be picked up at a specific Post Office after 3 p.m. on that day. The specified Post Office was closed when the individual returned home later that day, and the individual was, therefore, unable to get actual delivery of the severance pay until January 2, 1975. The gross amount of the severance pay was included in the 1974 Wage and Tax Statement, Form W-2, that the employer furnished the individual in January 1975.

Section 451(a) of the Internal Revenue Code of 1954 provides that any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer unless, under the method of accounting used in computing taxable income, such amount is to be properly accounted for as of a different period.

Section 1.451-2(a) of the Income Tax Regulations provides that income, although not actually reduced to a taxpayer's possession, is constructively received by the taxpayer in the taxable year during which it is credited to the taxpayer's account, set apart for the taxpayer, or otherwise made available so that the taxpayer may draw upon it at any time, or so that the taxpayer could have drawn upon it during the taxable year if notice of intention to withdraw had been given.

In Rev. Rul. 68-126, 1968-1 C.B. 194, a taxpayer received a retirement check drawn in late December and placed in the mail and delivered after the first of January of the following year, though the check had been available for personal delivery to the taxpayer on the last working day in December. That Revenue Ruling holds that the amount of the December check is includible in the taxpayer's gross income for the earlier year since the taxpayer could have received the check on the last working day of December by appearing in person and claiming it.

The facts of the instant case are similar to those in Rev. Rul. 68-126 because the check was available to the taxpayer in the taxable year preceding the year in which the check was actually received. The individual's absence from home when delivery was attempted is not a limitation or restriction on receipt of the payment on that day and, thus, does not bar constructive receipt of the payment. Moreover, the fact that the Post Office was closed before the individual read the notice advising that the certified mail could be obtained there did not prevent constructive receipt. Accordingly, the severance pay is includible in the individual's gross income for the year ending on December 31, 1974.

The instant case is distinguishable from the case of S. L. Avery, 292 U.S. 210 (1934), XIII-1 C.B. 131, wherein the Court concluded that a dividend check mailed on December 31 was not constructively received by the shareholder in December, and the amount of the check was not includible in the gross income of the recipient until the following year when the check was received in the mail. In the Avery case, the corporation intended to and customarily mailed the dividend checks on December 31, so that such checks could not and did not reach the shareholders until January of the following year. Furthermore, there was nothing to show that the shareholder could have obtained payment on December 31.