Assignment Of Income

To prevent perceived abuses of the Code, the Service has used, among other tools, various iterations of the assignment of income doctrine to prevent taxpayers from escaping tax liability through "anticipatory arrangements and contracts however skillfully devised." However, while the Service and the courts have often emphasized the importance of substance over form, the modern iteration of the assignment of income doctrine indicates a striking preference for a form-based test, as exemplified in Owen v. In Owen, the Tax Court invoked the assignment of income doctrine and the related control of income test from Johnson v.

Commissioner to find against a taxpayer with respect to his attempts to have earned income taxed to his personal service corporation (PSC) rather than to himself.

Gross income is taxed to the person who earns it by performing services, or who owns the property that generates the income.

Under the assignment of income doctrine, a taxpayer cannot avoid tax liability by assigning a right to income to someone else.

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Despite the Supreme Court holding in 1930 that earned income is presumptively taxable to the person who actually earns the income, determining who actually earned the income has long been a point of contention between the Service, taxpayers, and the courts, especially where taxpayers have acted to lower their tax burden by assigning earned income to entities other than themselves (e.g., a spouse or a trust).Part IV analyzes the decision in the context of the assignment of income doctrine, highlights flaws in the current approach, and offers ideas for the rectifying of these flaws, including the possibility of clarifying regulations creating a safe harbor for taxpayers.Without such repairs, the emphasis on form over substance evidenced by Owen will likely allow savvy taxpayers to abuse the legal framework, while less savvy taxpayers are singled out by the Service for not adhering to unclear standards.However, a taxpayer can assign future income by making an assignment of property for value or a bona fide gift of the underlying property.The doctrine does not apply if a right to income is sold or exchanged for value.If a taxpayer transfers appreciated property prior to a sale or exchange, the appreciation is income to the person owning the property at the time of the sale or exchange.The Bloomberg Tax Portfolio, Gross Income: Tax Benefit, Claim of Right and Assignment of Income, No.The Worksheets include relevant legislative history for provisions discussed in detail and for which regulations have not yet been issued.This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks.Pursuant to a condition of the 2002 sale by the taxpayer of his companies to Amerus Annuity Group Co.(Amerus), the taxpayer agreed to continue in his executive position; the agreement allowed him to earn marketing allowances, incentive bonuses, and commissions.


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