281 U.S. 111 (1930), Supreme Court of the United States
Lucas v. Earl is a foundational Supreme Court decision in federal income tax law that established the modern assignment-of-income doctrine for personal services.
Can a taxpayer avoid federal income tax on personal earnings by entering into an anticipatory contract assigning one-half of those earnings to a spouse so that the income, when paid, belongs in part to the spouse from the outset?
Under the assignment-of-income doctrine for personal services, income is taxed to the person who earns it. Anticipatory arrangements and contracts—however skillfully devised—cannot shift the incidence of tax on compensation for services from the earner to another. As Justice Holmes stated, "the fruits cannot be attributed to a different tree from that on which they grew."
No. Income from personal services is taxable to the person who performed the services, notwithstanding a prior contract purporting to assign a portion of that income to another person, including a spouse.
Lucas v. Earl is a cornerstone of federal tax doctrine. It firmly establishes that personal-service income cannot be diverted for tax purposes by private contracts or anticipatory assignments. The case also draws a critical distinction between (1) assigning income from labor (ineffective for tax shifting) and (2) transferring ownership of income-producing property itself (which can shift future income taxation to the transferee). Its principle was later extended to analogous contexts, such as gifts of interest coupons detached from bonds, and remains central to modern analyses distinguishing substance from form. For students, Lucas v. Earl is a touchstone for understanding income splitting, the limits of state-law arrangements in federal tax, and why later cases like Poe v. Seaborn (upholding community-property income splitting) are consistent: when state law vests a present ownership interest in income as it is earned, the tax follows ownership; when only an anticipatory assignment of earnings is made, the tax follows the earner.