What does the Assignment of Income Doctrine entail?

The Assignment of Income Doctrine is fundamental in tax law and primarily means that income earned from services must be taxed to the individual who performs those services, regardless of how or to whom the income is assigned. When a taxpayer provides a service, they are considered to be the source of the income generated from that service, and therefore, they are responsible for paying tax on it.

This principle prevents taxpayers from avoiding tax liability by simply assigning their income to another person or entity. For instance, if a self-employed individual provides a service and then tries to declare the income as belonging to a corporation they own, the IRS will still treat the income as earned by the individual because they performed the work. This ensures that taxes are properly attributed and collected from the actual earners of income.

The other options do not accurately capture the essence of the Assignment of Income Doctrine. The first option discusses the timing of income taxation but doesn't relate to who earns the income. The third option mistakenly states that passive income is exempt from taxation, which is not true, as all income types are subject to taxation unless specifically excluded. The final option inaccurately suggests a universal requirement for all income to be reported in the year received without regard to the actual earner of that income.