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Welcome and thank you for giving me the opportunity to assist you with your tax question.
Receipt of a promissory note for work performed does not constitute taxable income. You do not report the income until it is actually received.
As to the Section 409A part of your question, this does not pertain to your circumstances.
Please let me know if I can assist you further. Thank you.
Can you provide more clarification to your answer?
1. Gross income is not limited to cash received. "It includes income realized in any form, whether money, property, or services. (26 CFR 1.61). Promissory note would fit the definition of property.
2. Seems like something would be taxable under #1 above unless it can meet the requirements of a 409A
Thank you for your follow-up questions.
As to your #1, a promissory note is not considered property. Generally, a promissory note is simply a "promise" to pay a certain amount of money within a specified time period.
As to your #2, Section 409A does not pertain to your circumstances. It is a means to defer income. You are not deferring income. You haven't received any income and it is not ready to be paid to you.
Income is not reportable for taxable purposes until it is actually received. In other words, you have not received anything except a piece of paper from your employer that says you will be paid in 5 years. Once he pays you the money that he owes you, you will report that as income in the year it is received.
Please let me know if you require further clarification. Thank you and best regards.
A promissory note is a financial instrument, but financial instruments are not property.
Some examples of property would be a house, a car, etc.
You are correct regarding the types of property. A promissory note would not be intangible property. The IRS list for intangible property is as follows:
Intangible Property is property that has value but cannot be seen or touched. It includes things such as:
My point of reference is http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Intangibles
To further clarify, the promissory note you have is a promise to pay you money (tangible property) for services you performed within a specified period of time. As it stands right now, all you have is a piece of paper that specifies that fact. Therefore, that promissory note (piece of paper) is not considered to be real, tangible or intangible property.
Please let me know if you require further clarification or information.
Thank you and best regards.
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