Bad check/income question

[Cat in OH]

A client just called me. She had given me a 1099-Misc for $1500 received as a class action settlement The settlement was for excess interest and fees charged on a mortgage, if that matters. Here's the catch: the 1099 was included with the check. They were both received in late December 2007. She only deposited the check in her bank account last week and although the check stated that it was good for 90 days, it has been returned.

Her question: since the check was not honored, does she still have to include it on her 2007 taxes? Of course, if the check is replaced or cashed later, it would be income on her 2008. Or do we have to include it in 2007 income then deduct it in 2008 if the check is never honored or replaced?

Thanks,

Cathy

[Oh Baby!]

No income until she actually has access to the cash. A bad check does not constitute income.

[kcjenkins]

Since you have no way of knowing whether the check was good when she got it, you have to assume that it was. She had the check, so unless it was dishonored in 2007, she has to report the income in the year she received the check.