-224-
Thus, the first issue in these cases is a simple one: Did
Kanter, Ballard, and Lisle earn the payments from The Five?
B. The Assignment of Income Doctrine
In United States v. Basye, 410 U.S. 441, 450 (1973), the
Supreme Court reiterated the longstanding principle that income
is taxed to the person who earns it, stating: “The principle of
Lucas v. Earl, [281 U.S. 111, 115 (1930)], 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.” For a more recent formulation of this
principle, see Commissioner v. Banks, 543 U.S. 426 (2005)
(holding a contingent-fee agreement should be viewed as an
anticipatory assignment to the attorney of a portion of the
client’s income from any litigation recovery).
When payments are remitted to a corporation, as is the case
here, a question may arise whether the corporate entity earned
the income. Generally, a corporate entity will be recognized for
tax purposes. In Moline Props. Inc. v. Commissioner, 319 U.S.
436, 438-439 (1943), the Supreme Court established the following
test for determining whether a corporation will be recognized as
a separate taxable entity:
The doctrine of corporate entity fills a useful
purpose in business life. Whether the purpose be to
gain an advantage under the law of the state of
incorporation or to avoid or to comply with the demands
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