The assignment of income : effective methods for the reduction of taxes
Individuals in our society are becoming increasingly concerned about providing financial protection for their children. These concerns are further provoked by wealth transfer taxes that have long been a favorite taxable event of legislators charged with the responsibility for collecting revenues. In an effort to reduce potential dissolution of wealth from the transfer taxes, taxpayers have attempted to make arbitrary assignments of their income to other members of the family unit. Under a concept referred to as the "Assignment of Income Doctrine", the U.S. Supreme Court developed the principle that income must always be attributable to the corpus from which it came, and accordingly, taxed to the owner of the corpus. The purpose of this dissertation was to provide a detailed analysis of selected alternative methods to reassign the corpus or statutorily assign the income in an effort to preserve over-all family wealth. Since there exists no lingering doubt about the constitutionality of the estate tax, the primary objective of this dissertation was to present to the reader the alternative means available to assign income from a taxpayer in a high marginal tax bracket to the tax return of a family member in a lower tax bracket. A comprehensive analysis was used to segregate the alternative methods into three distinct divisions. The first division examined income assignments only. The second division studied the transfers of both income and corpus, while the third division concentrated on strictly corpus assignments. The analysis consisted of legal research about the common methods employed and their practical applications under the current tax law. The original source material that was used consisted of federal statutory law, federal judicial decisions and Treasury rulings and regulations interpreting the application of the tax laws. To supplement the legal research, a computer model was developed to provide the taxpayer with a quantitative tool to aid in the decision making process. The model accepted as it's inputs the current financial position of the taxpayer and provided as an output the expected value of the alternative tax savings techniques introduced in the legal research. By quantifying the alternatives, the estate planner will be able to draw conclusions of the research and make inferences about the use of such tax savings opportunities in the future.