income_shifting_v_assignment-1

income_shifting_v_assignment-1 - ($30,000 x (35% 15%) of...

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An Attempt at Income Shifting and the Assignment of Income Doctrine Mr. Lucas owns rental property generating $30,000 of annual income. He tells his tenants to pay their rent directly to his daughter, Meredith. Mr. Lucas’s marginal tax rate is 35 percent while Meredith’s marginal tax rate is only 15 percent. If Mr. Lucas could successfully shift taxation of the rental income to his daughter, this tax planning strategy would save the family unit $6,000
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Unformatted text preview: ($30,000 x (35% 15%) of tax per year. However, the assignment of income doctrine will tax the rental income to Mr. Lucas because he retains ownership of the underlying property. The cash flow directed to Meredith will be treated as a gift. Thus, this scheme may have additional negative tax consequences. Finally, while the IRS has broad powers to recharacterize a transaction, the taxpayer is generally bound by their chosen legal form....
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