Attribution of Income

Question 1

What is the holding of Lucas v Earl

Answer 1

Income from labor is taxable to the person who performed the labor

Question 2

State law determines the property rights and the federal law determines the taxation of those property rights

Answer 2

That is very evident in the difference between Lucas v Earl and Poe v Seaborne

Question 3

Why are the Lucas v Earl and Poe v Seaborne rules different?

Answer 3

We don’t trust married couples to properly allocate their income according to how much value they created (they are too likely to collude to minimize the collective tax burden)

But we do allow arms length parties to properly allocate their income based on how much value each provides because that’s how labor markets work

Question 4

What is the holding of Blair and Horst?

Answer 4

The owner of the “property” is taxed on the “income”
Blair was a horizontal slice, so both donor and donee were taxed
Horst was a vertical slice so only donor was taxed because donor retained the propertuy

Question 5

When does the old school property distinction drawn by Blair and Horst breakdown? (x2)

Answer 5

When a really long term interest is transferred that represents most of the value of the property

When the investment has no end cash flow - like a leasehold estate

Question 6

Come back to the implicit interest discussion after Blair and Horst

Answer 6

After the completion of the class

Question 7

What was the difficulty that Eubank faced? How did it resolve that?

Answer 7

It needed to separate out the labor component from the capital component so that it could give each the proper treatment under lucas v Earl or Blair/Horst. It refused to draw that line and called the whole think income from labor

Question 8

Explain the evolution of the doctrine from Eubank->Cotlow->Stranahan

Answer 8

In Eubank, the court did not divide the assigned income into labor and capital components.
In Cotlow, the market divided the assigned income into labor and capital components and the court accepted the distinction.
In Stranahan, family members divided the assigned income into Pv of assignment and TVM/risk and the court independently validated the line (indicating it would draw the line on its own)