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With these basic principles in mind, we turn to the issues for
decision.
Issue 1. Commission Income
Respondent determined that most of the commissions paid by
ABL to CAI were taxable to petitioners. Respondent primarily
argues that the commissions are taxable to petitioners under the
assignment of income doctrine. Petitioners argue that the
doctrine prohibiting an assignment of income does not apply to
the facts at hand because petitioner organized CAI upon the
mandate of Ashland. Petitioners argue that the doctrine is
inapplicable because petitioner was not a shareholder of CAI.
Petitioners argue that Finley Kumble organized CAI on its own
initiative, and that petitioner was ignorant as to CAI's
organization and operation. Petitioners argue that petitioner
insisted to Finley Kumble that all of the commissions from
petitioner's services be reported by BarSon, that he informed
Finley Kumble that he wanted nothing to do with an "offshore
corporation", and that he fired Finley Kumble (with the exception
of having the firm work on unrelated legal work for BarSon to the
extent of the advanced retainer), when Finley Kumble recommended
to him that he and Dr. Young evade taxes by keeping BarSon's
income offshore. Petitioner argues that Finley Kumble
established and controlled CAI for Finley Kumble's personal gain.
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