Illinois
How Donnelly v. United States applies in Illinois: state-specific rules, key cases, and bar exam notes for Tax Law.
Illinois adopts similar principles from Donnelly v. United States regarding the doctrines of constructive receipt and when income is deemed realized for tax purposes. The state emphasizes that taxpayers must account for income that is unqualifiedly theirs, which aligns with federal interpretations.
Income is considered constructively received when a taxpayer has unrestricted access to it, even if the income has not been physically received.
The court held that income is taxable when there is no substantial limitation on the taxpayer’s ability to access the funds.
The ruling clarified that even contingent income can be taxable under Illinois law if the taxpayer has dominion over it.
The court found that income derived from an expected source is considered realizable, thereby subject to state tax even if not yet received.
Illinois's approach mirrors the federal standard on income recognition, particularly the constructive receipt doctrine. Both jurisdictions recognize that the determinative factor is the taxpayer's access to income rather than physical possession.
Understanding the implications of Donnelly v. United States is critical for the Illinois bar exam, as it tests knowledge on cash basis versus accrual basis taxation and constructive receipt principles.