A mutual fund closed in Nov 2021, but I did not receive the money from the sale of those shares until February 2022. Should I report the capital gain in 2021 or 2022?

[kbryant32]

This mutual fund was purchased in Singapore, in Singapore dollars, back in 2008

[AmyC · Accepted solution]

The year you could have constructively received the income. When was the money sent to you? Was it mailed to you last year and took a while to get to you or they made an electronic deposit in Feb?

You would use 2021, if the money was available / mailed  for your then. Use 2022 if that is when the money was available/ deposited.

[kbryant32]

The custodian for the fund was a Singapore bank.  I guess in the vast majority of cases, when fund units are sold, the money is immediately deposited in your account, but in this case the fund was liquidated (for everyone) and we had no 'cash' account with that bank.  We had not accessed the account for so long, it was marked 'dormant' and the bank didn't know where to send the money, until we contacted them this year (2022).  So I understand from your response that we would report the gain on the 2022 return, and ignore it for 2021 - right?

Thank you so much for your response - I couldn't find anything anywhere that helped with that particular detail.  Your answer is very helpful.

[GeorgeM777 · Accepted solution]

To follow-up on the comments from @AmyC, and according to the IRS, you include in your gross income all items of income you actually or constructively received during the tax year. If you received property and services, you must include their fair market value (FMV) in income.

So what does it mean to have constructive receipt.  According to the IRS, income is constructively received when an amount is credited to your account or made available to you without restriction. You do not need to have possession of it. If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it.  Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations.  

Given the facts you have stated, it does not appear that you had the sales proceeds when the fund was sold.  It also appears that the bank held your funds because they did not know where to send them until 2022.  Thus, it appears that you will report the income in 2022.  

Here is a link to the IRS webpage that discusses accounting periods and methods.  The index to the page is on the left side, and if you scroll down to the heading "accounting methods," you can click on that heading and it will take you to the section that discusses constructive receipt. 

IRS Accounting Methods 

@kbryant32

[kbryant32]

Wow - what a thorough response, fully supported with reference material.  Thank you, George - that's great service.  I will look to serve others in turn.