Brief Fact Summary. Decedent paid a large interest penalty to the I.R.S. In order to make full use of the deduction available for the interest penalty paid, he assigned rights to dividends to his son and received income of $115,000 for the assignment.
Synopsis of Rule of Law. A taxpayer may not avoid taxation by legally assigning or giving away a portion of income derived from income producing property that the taxpayer retains.
Issue. Are the dividends paid to Decedent’s son includible in Appellant’s gross income?
Held. Circuit Judge Peck issued the opinion for the United States Sixth Circuit Court of Appeals in reversing the Tax Court and holding that the assignment was valid and the dividends should not be included in Appellant’s gross income.
Discussion. This was a transaction for good and sufficient consideration, and was not a gift. The son acquired a right independent of Decedent, and Decedent was completely divested of any interest in the dividends.