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. This principle holds that income must be taxed to the person who has earned it or who is entitled to receive it. In this case, the free world cruise was a reward for Ophra's outstanding performance, so it is considered her income. By asking her employer to issue the cruise tickets to her parents, Ophra cannot avoid paying taxes on the value of the tickets, as the assignment of income principle will require her to be taxed on the value of the tickets.

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