Tuesday, May 20, 2014

Lucas v. Earl case brief summary


 earl and wife entered into valid agreements that all of their respective earnings and other receipts (including inheritance) would be held as joint tenants with right of survivorship. Earl, who earned a salary and certain atty’s fees, took the position on his return that he was taxable on only half of them, and his wife on the other half.
o   In Lucas, the court held that the anticipatory assignment (income not yet earned. Once earned, it is a mere transfer of assets) of income does not divest the actual earner of the income from having to recognize it as gross income.
o   In another case, the court held that one-half of a husband’s income in a community property state vested, as a matter of law, in his wife and that, accordingly, he should not have to recognize it as gross income.
o   this result in the rule that income earned by an agent is taxable to the principal where local law has created the agency relationship. (does this not apply to married couples? How are married couples now treated?)
o   Congress solved the differences between community and non-community property states with the joint filing system, which aggregates all of the income for joint filers and, essentially, halves it for all married persons filing separately.

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