American tax law has two components. First, the Internal Revenue Code is a set of written laws. Secondly, court cases created a “common law.” The assignment of income doctrine is one of those common laws. There are two basic assignment of income principles: Income from personal services is taxable to the person who performs the services, and income from property is taxable to the person who owns the property. The assignment of income doctrine embodies the principle that income should be taxed to the person who earns it. The doctrine prevents taxpayers from shifting income to persons that are tax exempt. Sometimes, the income is shifted to a retirement plan, a charity or offshore. For tax purposes, an assignment of income is disregarded and income is taxed to the person who controls the earning of the income. An assignment of income from property is disregarded unless the underlying income-producing property is also transferred. The doctrine does not affect the validity of a transfer for any purpose other than computing income tax. The assignment of income doctrine stems from a 1930 Supreme Court’s case,Lucas v. Earl, (281 U.S. 111 (1930)). The decision has developed into the doctrine. The case law follows the Supreme Court doctrine, but in certain areas, splits have developed among the circuit courts and the Tax Court. The doctrine interacts with Code Section 61, which defines what is included in gross income but does not specify to whom it is income. The assignment of income doctrine is easy to understand in some cases and hard to other understand in others. Exceptions to the Assignment of Income Doctrine: Agency Tax Planning The assignment of income doctrine does not apply if the recipient of income receives the income solely as the agent of another person and remits the income to that person. The agent is merely a conduit to pass the income on to the principal. A taxpayer receives a transfer as an agent if the taxpayer does not benefit or gain from the monies and is given control of the monies only to fulfil instructions on behalf of the principal. A taxpayer who receives a transfer of monies to his bank account with instructions that the monies are to be used to buy bonds for the principal need not include the monies in gross income. Personal Service Corporations and International Tax Planning Section 269A is a tax law that increases the tax rate on a domestic corporation that earns what is defined as “personal service income” earned by the corporation. This law may also apply to a foreign corporation engaged in performing certain (but not all) personal services in the U.S. In Keller v. Commissioner, the court looked at the assignment of income doctrine when a corporation received personal service income. The court established a two-part test to determine whether a corporation earning service income was a sham to illegally avoid tax on personal services income by assigning it to the corporation. In determining whether a taxpayer’s use of .

1. American tax law has two components. First, the Internal Revenue Code is a set of written laws.
Secondly, court cases created a “common law.” The assignment of income doctrine is one of
those common laws.
There are two basic assignment of income principles: Income from personal services is taxable to
the person who performs the services, and income from property is taxable to the person who
owns the property.
The assignment of income doctrine embodies the principle that income should be taxed to the
person who earns it. The doctrine prevents taxpayers from shifting income to persons that are tax
exempt. Sometimes, the income is shifted to a retirement plan, a charity or offshore.
For tax purposes, an assignment of income is disregarded and income is taxed to the person who
controls the earning of the income. An assignment of income from property is disregarded unless
the underlying income-producing property is also transferred. The doctrine does not affect the
validity of a transfer for any purpose other than computing income tax.
The assignment of income doctrine stems from a 1930 Supreme Court’s case,Lucas v. Earl, (281
U.S. 111 (1930)). The decision has developed into the doctrine. The case law follows the
Supreme Court doctrine, but in certain areas, splits have developed among the circuit courts and
the Tax Court. The doctrine interacts with Code Section 61, which defines what is included in
gross income but does not specify to whom it is income.
The assignment of income doctrine is easy to understand in some cases and hard to other
understand in others.
Exceptions to the Assignment of Income Doctrine:
Agency Tax Planning
The assignment of income doctrine does not apply if the recipient of income receives the income
solely as the agent of another person and remits the income to that person. The agent is merely a
conduit to pass the income on to the principal.
A taxpayer receives a transfer as an agent if the taxpayer does not benefit or gain from the
monies and is given control of the monies only to fulfil instructions on behalf of the principal. A
taxpayer who receives a transfer of monies to his bank account with instructions that the monies
are to be used to buy bonds for the principal need not include the monies in gross income.
Personal Service Corporations and International Tax Planning
Section 269A is a tax law that increases the tax rate on a domestic corporation that earns what is
defined as “personal service income” earned by the corporation. This law may also apply to a
foreign corporation engaged in performing certain (but not all) personal services in the U.S.
In Keller v. Commissioner, the court looked at the assignment of income doctrine when a
corporation received personal service income. The court established a two-part test to determine

2. whether a corporation earning service income was a sham to illegally avoid tax on personal
services income by assigning it to the corporation.
In determining whether a taxpayer’s use of a corporation performing the service will be
recognized as valid under the assignment of income doctrine, the courts look at (1) whether the
corporation performing the service controls the taxpayer’s actions and income; and (2) whether
the corporation performing the service’s control is recognized by the entity paying the taxpayer’s
salary.
If the assignment to the corporation performing the service is invalid, all income attributable to
the taxpayer’s personal services remains taxable to the taxpayer.
An assignment is not valid for tax purposes if the taxpayer rather than the corporation
performing the service receives the income attributable to the taxpayer’s personal services.
Congress enacted Code Section 269A, at least in part, as a response to taxpayer victory in Keller.
Congress intended that Code Section 269A overturn the decisions reached in cases like Keller v.
Commissioner, if an only if the corporation had no meaningful business purpose other than to
secure tax benefits that would not otherwise be available. Congress intent didn’t change the law.
Common law had long held that some business purpose other than tax savings is required in most
tax structures.
The issue of whether the use of a corporation performing the service is valid frequently arises in
cases involving professional athletes. There is a lack of consensus among the courts on the
application of the two-part test to determine whether a professional athlete’s corporation
performing the service is valid.
Solution
American tax law has two components. First, the Internal Revenue Code is a set of written laws.
Secondly, court cases created a “common law.” The assignment of income doctrine is one of
those common laws.
There are two basic assignment of income principles: Income from personal services is taxable to
the person who performs the services, and income from property is taxable to the person who
owns the property.
The assignment of income doctrine embodies the principle that income should be taxed to the
person who earns it. The doctrine prevents taxpayers from shifting income to persons that are tax
exempt. Sometimes, the income is shifted to a retirement plan, a charity or offshore.
For tax purposes, an assignment of income is disregarded and income is taxed to the person who
controls the earning of the income. An assignment of income from property is disregarded unless
the underlying income-producing property is also transferred. The doctrine does not affect the

3. validity of a transfer for any purpose other than computing income tax.
The assignment of income doctrine stems from a 1930 Supreme Court’s case,Lucas v. Earl, (281
U.S. 111 (1930)). The decision has developed into the doctrine. The case law follows the
Supreme Court doctrine, but in certain areas, splits have developed among the circuit courts and
the Tax Court. The doctrine interacts with Code Section 61, which defines what is included in
gross income but does not specify to whom it is income.
The assignment of income doctrine is easy to understand in some cases and hard to other
understand in others.
Exceptions to the Assignment of Income Doctrine:
Agency Tax Planning
The assignment of income doctrine does not apply if the recipient of income receives the income
solely as the agent of another person and remits the income to that person. The agent is merely a
conduit to pass the income on to the principal.
A taxpayer receives a transfer as an agent if the taxpayer does not benefit or gain from the
monies and is given control of the monies only to fulfil instructions on behalf of the principal. A
taxpayer who receives a transfer of monies to his bank account with instructions that the monies
are to be used to buy bonds for the principal need not include the monies in gross income.
Personal Service Corporations and International Tax Planning
Section 269A is a tax law that increases the tax rate on a domestic corporation that earns what is
defined as “personal service income” earned by the corporation. This law may also apply to a
foreign corporation engaged in performing certain (but not all) personal services in the U.S.
In Keller v. Commissioner, the court looked at the assignment of income doctrine when a
corporation received personal service income. The court established a two-part test to determine
whether a corporation earning service income was a sham to illegally avoid tax on personal
services income by assigning it to the corporation.
In determining whether a taxpayer’s use of a corporation performing the service will be
recognized as valid under the assignment of income doctrine, the courts look at (1) whether the
corporation performing the service controls the taxpayer’s actions and income; and (2) whether
the corporation performing the service’s control is recognized by the entity paying the taxpayer’s
salary.
If the assignment to the corporation performing the service is invalid, all income attributable to
the taxpayer’s personal services remains taxable to the taxpayer.
An assignment is not valid for tax purposes if the taxpayer rather than the corporation
performing the service receives the income attributable to the taxpayer’s personal services.
Congress enacted Code Section 269A, at least in part, as a response to taxpayer victory in Keller.
Congress intended that Code Section 269A overturn the decisions reached in cases like Keller v.

4. Commissioner, if an only if the corporation had no meaningful business purpose other than to
secure tax benefits that would not otherwise be available. Congress intent didn’t change the law.
Common law had long held that some business purpose other than tax savings is required in most
tax structures.
The issue of whether the use of a corporation performing the service is valid frequently arises in
cases involving professional athletes. There is a lack of consensus among the courts on the
application of the two-part test to determine whether a professional athlete’s corporation
performing the service is valid.