Ophra is a cash basis taxpayer who is employed in the publishing industry. This year her employer informed her that because of her outstanding performance she is entitled to a free world cruise. Ophra asked her employer to issue the cruise tickets to her parents, and he complied with this request. Identify the principle that will determine whether Ophra or her parents are taxed on the value of the cruise tickets:

Question

Quizplus · Accepted Answer

The principle that will determine whether Ophra or her parents are taxed on the value of the cruise tickets is the Assignment of Income principle. This principle states that income must be taxed to the person who earned it, and cannot be shifted to someone else. In this case, the free world cruise was awarded to Ophra for her outstanding performance, so the value of the tickets is considered her income and must be taxed to her. By asking her employer to issue the tickets to her parents, Ophra attempted to shift this income to someone else, which is not allowed under the Assignment of Income principle. Therefore, Ophra will be taxed on the value of the cruise tickets, even though she did not physically possess or use them.

Ophra Is a Cash Basis Taxpayer Who Is Employed in the Publishing