Lucas v. Earl
Encyclopedia
Lucas v. Earl, 281 U.S. 111
(1930), is a United States Supreme Court case concerning U.S. Federal income taxation, about a man who reported only half of his earnings for years 1920 and 1921. The case addresses the taxpayer's attempt at tax avoidance based on a contract with his wife. The contract specified that earnings were owned by the couple as joint tenants. Justice Oliver Wendell Holmes, Jr.
delivered the Court’s opinion which generally stands for the proposition that income from services is taxed to the party who performed the services. The case is used to support the proposition that the substance of the transaction, rather than the form, is controlling for tax purposes.
The Bureau of Internal Revenue (the predecessor to the Internal Revenue Service
) determined, and the Board of Tax Appeals (predecessor to the United States Tax Court
) ruled, that the tax imposed on Mr. Earl was imposed on his entire salary, including the portion assigned to his wife. Earl appealed, and the decision was reversed by the Circuit Court of Appeals for the Ninth Circuit.
Holding: the Anticipatory Assignment of Income Doctrine
The validity of Earl’s contract was not questioned. However, the U.S. Supreme Court reversed the decision of the Ninth Circuit Court of Appeals and ruled in favor of the tax collector. The Supreme Court indicated there was "no doubt that the statute could tax salaries to those who earned them and provide that the tax could not be escaped by anticipatory arrangements and contracts however skillfully devised to prevent the salary when paid from vesting even for a second in the man who earned it." Holmes concludes his opinion with the classic metaphor: The fruits cannot be attributed to a different tree from that on which they grew.
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(1930), is a United States Supreme Court case concerning U.S. Federal income taxation, about a man who reported only half of his earnings for years 1920 and 1921. The case addresses the taxpayer's attempt at tax avoidance based on a contract with his wife. The contract specified that earnings were owned by the couple as joint tenants. Justice Oliver Wendell Holmes, Jr.
Oliver Wendell Holmes, Jr.
Oliver Wendell Holmes, Jr. was an American jurist who served as an Associate Justice of the Supreme Court of the United States from 1902 to 1932...
delivered the Court’s opinion which generally stands for the proposition that income from services is taxed to the party who performed the services. The case is used to support the proposition that the substance of the transaction, rather than the form, is controlling for tax purposes.
Facts and procedural history
Earl, an attorney, entered into a contract with his wife where all property and earnings "shall be treated and considered . . . to be . . . owned by us [Earl and his wife] as joint tenants . . . with rights of survivorship." Earl intended to cut his tax liability in half. The issue before the court centered on whether Earl alone or Earl and his wife should be taxed on salary and attorneys fees earned by Earl in 1920 and 1921.The Bureau of Internal Revenue (the predecessor to the Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
) determined, and the Board of Tax Appeals (predecessor to the United States Tax Court
United States Tax Court
The United States Tax Court is a federal trial court of record established by Congress under Article I of the U.S. Constitution, section 8 of which provides that the Congress has the power to "constitute Tribunals inferior to the supreme Court"...
) ruled, that the tax imposed on Mr. Earl was imposed on his entire salary, including the portion assigned to his wife. Earl appealed, and the decision was reversed by the Circuit Court of Appeals for the Ninth Circuit.
Holding: the Anticipatory Assignment of Income DoctrineAssignment of income doctrineThe assignment of income doctrine is a judicial doctrine developed in United States case law by courts trying to limit tax evasion. The assignment of income doctrine seeks to "preserve the progressive rate structure of the Code by prohibiting the splitting of income among taxable...
The validity of Earl’s contract was not questioned. However, the U.S. Supreme Court reversed the decision of the Ninth Circuit Court of Appeals and ruled in favor of the tax collector. The Supreme Court indicated there was "no doubt that the statute could tax salaries to those who earned them and provide that the tax could not be escaped by anticipatory arrangements and contracts however skillfully devised to prevent the salary when paid from vesting even for a second in the man who earned it." Holmes concludes his opinion with the classic metaphor: The fruits cannot be attributed to a different tree from that on which they grew.See also
- List of United States Supreme Court cases, volume 281
- Poe v. Seaborn,