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receipt to the sum of the increases in gross income for the years
to which the lump-sum payment is attributable.
In the present case, the parties agree that an election
under section 86(e)(1) would not serve to reduce the amount of
the lump-sum payment that is includable in petitioners’ gross
income in 2001. That being the case, it is apparent that 85
percent of the lump-sum payment is includable in petitioners’
gross income for 2001 pursuant to the formula of section 86(a).
Petitioners further contend that the portion of the lump-sum
payment of Social Security benefits that was paid to Mrs. Davis’s
attorney for legal fees (i.e., $4,000) should be disregarded for
purposes of section 86(a). We disagree.
Under the so-called anticipatory assignment of income
doctrine, “A taxpayer cannot exclude an economic gain from gross
income by assigning the gain in advance to another party.”
Commissioner v. Banks, 543 U.S. , 125 S. Ct. 826, 831 (2005),
see Lucas v. Earl, 281 U.S. 111 (1930); S. Rept. 98-23, 26
(1983), 1983-2 C.B. 326, 328 (stating that for tax purposes, the
total amount of Social Security benefits received by a taxpayer
is not reduced by attorney’s fees). Therefore, the portion of
the lump-sum payment of Social Security benefits that
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Last modified: May 25, 2011