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.
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.
Part II traces the relevant case law and doctrinal development.
Part III examines the assignments of income in Owen and the resulting opinion.
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.
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.