Alfred is a consultant for Data Planners. In an effort to minimize his tax liability he enters into a legal contract transferring 25% of the fees from a new consulting contract to his son Ken, who is 42, and owns a pest control business. Which of the following statements concerning the transaction is correct?
I.The assignment-of-income doctrine prevents Alfred from transferring taxation of the income to his son.
II.The assignment-of- income doctrine does not apply because the transfer is supported by a legal contract.

Question

Alfred is a consultant for Data Planners. In an effort to minimize his tax liability he enters into a legal contract transferring 25% of the fees from a new consulting contract to his son Ken, who is 42, and owns a pest control business. Which of the following statements concerning the transaction is correct?
I.The assignment-of-income doctrine prevents Alfred from transferring taxation of the income to his son.
II.The assignment-of- income doctrine does not apply because the transfer is supported by a legal contract.
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Quizplus · Accepted Answer

The assignment-of-income doctrine states that income is taxed to the individual who earns it, regardless of any agreements to transfer the income to another party. Therefore, Alfred cannot avoid taxation by transferring a portion of his consulting fees to his son, even if there is a legal contract in place. This means statement I is correct, and statement II is incorrect because the existence of a legal contract does not negate the application of the assignment-of-income doctrine.

Alfred Is a Consultant for Data Planners