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taxpayer, Newell, nor Inc. reported the payment to Ltd. as
income. The taxpayer subsequently was convicted of willfully
filing false Federal income tax returns for 1994 for both himself
and Inc.
On appeal, that taxpayer argued in pertinent part that the
Government was improperly allowed to proceed on an assignment of
income theory and the Government failed to prove its case beyond
a reasonable doubt. The taxpayer asserted that Inc. assigned its
contract to Ltd., and, therefore, the $1.3 million payment was
taxable to Ltd. The Court of Appeals rejected the taxpayer’s
arguments.
With regard to the assignment of income doctrine, the Court
of Appeals stated:
To shift the tax liability, the assignor [taxpayer/
Inc.] must relinquish his control over the activity that
generates the income; the income must be the fruit of the
contract or the property itself, and not of his ongoing
income-producing activity. * * * This means, in the case
of a contract, that in order to shift the tax liability to
the assignee the assignor either must assign the duty to
perform along with the right to be paid or must have
completed performance before he assigned the contract;
otherwise it is he, not the contract, or the assignee, that
is producing the contractual income--it is his income, and
he is just shifting it to someone else in order to avoid
paying income tax on it. * * * [Id. at 919-920.]
In addition to these points, the Court of Appeals noted that it
was not entirely accurate for the taxpayer to assert he was
prosecuted under the assignment of income doctrine where it was
not clear there in fact was an assignment and, even if there was,
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