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corporation can act only through its employees and agents, this
Court set forth two requirements that must be met before the
corporation, rather than the service-performing individual, can
be considered to control the earning of the income. These
requirements are: (1) The corporation must have had the right to
direct or control the individual’s activities in some meaningful
manner, and (2) there must exist between the corporation and the
person or entity using the services a contract or similar
indicium recognizing the corporation’s controlling position.
Id. at 890-891.
The U.S. Courts of Appeals for the Seventh Circuit and the
Federal Circuit apply a more flexible facts and circumstances
approach. Schuster v. Commissioner, 800 F.2d 672, 677-678 (7th
Cir. 1986), affg. 84 T.C. 764 (1985); Fogarty v. United States,
780 F.2d 1005, 1012 (Fed. Cir. 1986).
In United States v. Newell, 239 F.3d 917 (7th Cir. 2001),
the Court of Appeals for the Seventh Circuit addressed both the
assignment of income doctrine and concepts of alter ego in a
factual setting analogous to the facts presented in these cases.
In Newell, the taxpayer was president and a 50-percent
shareholder of LPM, Inc. (Inc.), a commodity trader. Pursuant to
a contract, Inc. earned a fee of $1.3 million from a client
during 1993, and the taxpayer directed the client to pay the fee
to LPM, Ltd. (Ltd.), a Bermuda corporation. Neither the
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