Federal Taxation: Comprehensive Topics (2010)

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Assignment of Income Doctrine The assignment of income doctrine means that income is taxed to the individual who earned it, even if the right to the income has been transferred to another individual prior to recognition, Compensation, interest, rents, dividends, and other forms of income usually must be included in the gross income of the recipient. A tax problem arises when an individual attempts to limit tax liability by assigning income. For tax purposes, income is taxed to the individual who has earned it. The assignment of income is disregarded unless the source of the income is also assigned. Income is realized by the assignor because he, who owns or controls the source of income, also controls the disposition of that which he could have received himself and diverts the payment from himself to others as the means of procuring the satisfaction of his wants. A taxpayer may not assign income to another, whether compensation, interest, rents, dividends,
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Unformatted text preview: or any other form of income. Even if the right to the taxpayer's income has been assigned and in possession of another, it must be attributed and included in the gross income of the taxpayer, not in the income of the assignee. In the famous case of Helvering v. Horst , the Supreme Court held that a father would be liable for the income tax on interest coupons detached from a bond given to his son prior to their maturity, even though the interest was received by his son. The assignor controls or owns the source of the income, so he also controls the direction of the income; therefore, the assignor must realize the income If one wants to get rid of the income, one would have to make a gift of the underlying property so that he or she would no longer have control of the property of income therefrom. Of course, then one has to worry about the gift tax rules and its complications, a whole course of its own....
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This document was uploaded on 11/17/2010.

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