## Facts

- Charles F. Kahler, a cash-basis taxpayer, worked for a seed company for salary plus commissions.
- In 1946, he earned commissions totaling $5,410.39; after withholding and an adjustment, his employer issued him a net commission check for $4,332.97 dated December 31, 1946.
- Kahler received the check after 5 p.m. on December 31, 1946, after banks had closed.
- He cashed the check at the drawee bank on January 2, 1947.
- Kahler did not report the 1946 commissions on his 1946 return; he reported them in 1947, explaining he could not cash the check on December 31.
- The Commissioner determined a 1946 income tax deficiency, asserting the commissions were taxable in 1946.

## Issues

1. Whether a cash-basis taxpayer realizes income in the year an employer delivers an unrestricted commission check after banking hours on December 31, or in the following year when the check is cashed.

## Decision

- The Tax Court held that Kahler realized the commission income in 1946 when he received the check.
- The court found the check was a normal, negotiable instrument, payable on demand, and not subject to substantial limitation or restriction.
- The court treated the inability to cash the check on December 31 due to bank closure as immaterial to income inclusion.
- The court distinguished authorities where delivery was subject to substantive restrictions that delayed the taxpayer’s ability to obtain value from the check.
- A concurrence agreed with inclusion in 1946 and noted Kahler’s practical inability to obtain cash on December 31 was not established as a meaningful barrier.

## Legal Principles

- A cash-basis taxpayer includes gross income in the taxable year of receipt.
- Receipt of an unrestricted, negotiable check generally constitutes receipt of income upon delivery, even if the check is not converted to cash until a later taxable year.
- Deferral may be appropriate only when the check or its delivery is subject to substantial limitations or restrictions that prevent the taxpayer from obtaining its economic value upon delivery.
- Practical inconvenience in presenting a check for payment (such as receipt after banking hours) does not, by itself, delay income recognition when the check is currently payable and under the taxpayer’s control.

## Conclusion

Because the commission check delivered on December 31 was unrestricted and immediately payable, Kahler had received the economic value of the commissions in 1946, making the commissions taxable in that year despite the check being cashed in 1947.


Kahler v. Commissioner, 18 T.C. 31 (1952)