Mods: Feel free to move this to IMHO if you feel it would be better there. I am not seeking specific tax or legal advice.
What happens if a person has incurred income that is taxable, but doesn’t know in what year it was incurred or needs to be reported?
Bill is a widget salesman. He, or his company, as applicable, is on a calendar year tax basis (tax year from January 1 to December 31) He meets Joe on December 31st and attempts to convince him that what he needs in his life is a widget. They talk for several hours into the night about widget quality, why buying a widget now is a good investment because the market has been abuzz with how widgets are going to become more expensive in the future, widget utility, why a widget is better than a doodad, why Bill’s widgets are of better quality than Sara’s widgets, and other appropriate topics.
Eventually, they reach a deal, and Joe hands over a fat stack of cash and Bill hands over a widget, or hands him a certificate redeemable for a widget at the warehouse, or something. Bill goes to record the sale in his ledger when he realizes that he doesn’t know what time it is, specifically whether or not Midnight has passed yet. His watch stopped sometime in the unknown past, he has no star charts, doesn’t know how to use them, or the sky is overcast, there is no reasonable way he can determine whether or not it is before or after midnight. He could walk or drive around, but he doesn’t have a stopwatch so by the time he reaches a working clock he won’t know how much time to subtract.
How would Joe (or Joe’s employer) report the associated income on US Federal income taxes?
A guess that I had was that, assuming that the widget sale is typical of Bill’s business, is that he would simply pick a year and report it, paying the taxes as calculated according to his WAG, and “de minimis non curat lex” and all that. Is that how it would have to work? Are there IRS procedures for this, or are there legal presumptions that he could use, such as a presumption that when the time of an event is unknown, it may be presumed, in the absence of other evidence, that it took place at (SELECT CorrectLegalPresumption FROM the earliest time it could have happened based on the available evidence, the midpoint, the latest time)? Could Bill call the IRS and get a binding adjudication as to when the sale took place?
What if the sale was really substantial and represented a material part of Bill’s income, and his income in the previous and succeeding years were so different that whether or not the sale took place in one year or the other results in a substantial difference in tax owed?
I did consider that if neither Bill nor Joe know what time the sale was made, the IRS would have little hope of proving that it didn’t happen in whatever year Bill ended up reporting it in, but I’m assuming that Bill wants to obey the letter of the law.