Assignment of Income Doctrine
The “assignment of income” doctrine states that income is taxed to the one who earns it — a taxpayer cannot avoid tax by assigning his income to another party or entity. Gross income derived from property must be included in the income of the person who beneficially owns it. Assignment of income adds to the “gross income” definition — there is an implicit requirement that gross income be included in the tax return of the appropriate taxpayer. This applies when a taxpayer tries to deflect income to another entity, such as by assigning an installment obligation or compensation earned to his corporation, a family trust or partnership.
CAN A PROPERTY OWNER DIRECT INCOME BE ASSIGNED TO ANOTHER PERSON?
You may have owners that want you to issue a year end 1099 or 1042-S in the name of another individual. Some of the more common reasons for this request is so that income is shifted to an individual in a lower tax bracket or in the case of foreign owners, they just do not want to deal with filing US nonresident tax returns.
There are only three ways an owner can assign income to someone else:
- The person has to be on title as joint tenant (then the income can be split equally only)
- The person has to be on title as tenant in common (then the income can be split only in the exact percentage of legal ownership).
- They have to give away their right to the income producing property in order not to be liable for the tax due on the income. I doubt they want to do that.
So the bottom line is that a property manager does not want to issue a 1099 or 1042-S to a family member or friend who is not on title.
If any of your clients request to shift income to someone else, a best business practice will be to look at title and based on title follow the rules above.