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must be included in the gross income of the person who renders
the services. See Lucas v. Earl, 281 U.S. 111 (1930). Even if a
taxpayer delivers the payor’s check to a third party before
cashing the check, income earned by the taxpayer for services
rendered must be included in gross income. See United States v.
Allen, 551 F.2d 208 (8th Cir. 1977). Moreover, if the taxpayer
caused the check to be issued directly to the third party, the
taxpayer must include the compensation in gross income. See
Hicks v. Commissioner, T.C. Memo. 1982-200, affd. 718 F.2d 1110
(9th Cir. 1983).
Lack of control over the earnings does not justify exclusion
of earnings from the employee’s gross income used to pay an
obligation of the employee. See Tucker v. Commissioner, 69 T.C.
675, 678 (1978). An employer’s payment of an obligation of the
taxpayer is equivalent to the taxpayer’s receipt of the income in
the amount paid. See Old Colony Trust Co. v. Commissioner, 279
U.S. 716 (1929); Minor v. Commissioner, T.C. Memo. 1998-237.
Where the transfer of funds at least partially discharges a legal
obligation of the taxpayer, the transfer is equivalent to receipt
by the taxpayer. See Helvering v. Horst, 311 U.S. 112, 116
(1940). The fact that the transfer is involuntary, such as by
garnishment, has no significance. See Vorwald v. Commissioner,
T.C. Memo. 1997-15 (taxpayer was required to include in income as
a distribution from his IRA amounts transferred from his IRA to
his former spouse in a garnishment proceeding).
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Last modified: May 25, 2011