Jack owns a warehouse complex and legally assigns the rents to his daughter. Who is taxed for federal income tax purposes on the rental income? What is the name of the doctrine applying to this fact-pattern?
The assignment of income doctrine states that a taxpayer -
(a) who earns income from property that the taxpayer owns; or
(b) from services that the taxpayer performs ;
generally cannot avoid liability for tax on aforessaid incomes earned by assigning it to another person or entity, whoever such person or entity may be.
In the Lucas v. Ear case, Justice Holmes first enunciated the principle that income from personal services "must be taxed to him who earns it,, and that assignments of such income "however skilfully devised" will not be respected for tax purposes.
The Supreme Court of USA has described this principle-now known as the assignment of income doctrine-as the "first principle of income taxation.
Hence, the rental income shall continue to be txed in the hands of Jack. Doctorine is Assignment of Income Doctorine
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