Introduction:
Walter used the cash method to account for income from his cattle ranch. During an audit in the third year, the IRS auditor discovered a document from a customer indicating that two years earlier, Walter sold 115 heads of cattle to the customer for $77,000. The document appeared to be a tear slip, the top half of a document that includes a business check. Walter's bank records for the first year showed no such deposit, and a conversation with the customer revealed that its check for $77,000 had never been cashed. A new check was issued during the third year. Walter included $77,000 as income on his third year tax return. The IRS then issued an audit report contending that the income was taxable in the first year under the doctrine of constructive receipt.
Task:
If you were a tax court judge hearing this case, how would you rule? Provide a rationale for your answer.