Assignment Of Income

Assignment Of Income-77
The doctrine can apply to both individuals and corporations.A taxpayer cannot assign income that has already accrued from the property the taxpayer owns, and cannot avoid liability for tax on that income by assigning it to another person or entity.

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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, the court did find for the taxpayer in one case, where he observed more closely the requirements of form.

This Note argues that while the result in Owen was likely correct under current doctrine, it highlights the doctrine's flawed emphasis on form over substance, which allows disparate outcomes for substantively analogous situations based solely on differences in form.

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.

Once a right to receive income has certainty, the taxpayer who earned it or otherwise created that right will be taxed on the income.

Similarly, under the anticipatory assignment of income doctrine, a taxpayer cannot shift tax liability by transferring property that is a fixed right to income.

This result often applies to interest, dividends, rent, royalties, and trust income.

The doctrine applies when the taxpayer’s right to income is practically certain to occur.


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