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We further find that the payments made by Frey to Holding Co.,
the payments made by Schaffel to IRA and Holding Co. from
transactions not involving Prudential, and the distributions from
Essex to Holding Co. are attributable solely to services provided
by Kanter.
B. Overview of the Law
Gross income includes all income from whatever source
derived. See sec. 61(a). The principle that income is taxed to
the person who earned it is basic to our income tax system. See
United States v. Basye, 410 U.S. 441, 450 (1973); Commissioner v.
Culbertson, 337 U.S. 733, 739-740 (1949); Lucas v. Earl, 281 U.S.
111, 115 (1930). In United States v. Basye, supra at 450, the
Supreme Court stated: "The principle of Lucas v. Earl, that he
who earns income may not avoid taxation through anticipatory
arrangements no matter how clever or subtle, has been repeatedly
invoked by this Court and stands today as a cornerstone of our
graduated income tax system". (Emphasis supplied.)
No device or arrangement, no matter how shrewdly or
cunningly contrived, can make earnings from personal services
taxable to anyone other than the real earner. This principle has
been applied to various income-splitting devices, e.g.,
anticipatory assignments of income to family members (Lucas v.
Earl, supra); family trusts (Helvering v. Clifford, 309 U.S. 331
(1940)); family partnerships (Commissioner v. Tower, 327 U.S. 280
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