WHOSE INCOME IS IT?
Issues arise b/c of progressive taxation –people want to push income to low bracket taxpayers
Much of law in this area is case law or administrative (Rev. Rulings) not statute
It is difficult to shift income without giving up the property
You cannot shift income received from services received under same agreement.
The one area where income can be shifted, is divorce or separation (alimony).
I – THE TAXABLE UNIT:
I-A. TAXATION OF THE FAMILY:
“Marriage penalty” is a tax penalty on 2-earner married couples by taxing them at a higher rate than unmarried individuals earning the same amount.
Policy that a married couple must file a joint return unless they elect to file separately (limitations apply with MFS)
Difficult if not impossible to treat everyone alike with progressive system that requires married individuals to combine their incomes – therefore the tax system is adjusted to make it more or less advantageous to being married vs. unmarried
Assumption under IRS is that married individuals share their income, 2 people earn together less .
2001 Tax Relief Act – attempt to relive “marriage penalty” starting in 2005 and completely eliminated in 2008 or 2009
DRUKER  (1982)
Marriage penalty does NOT constitute a direct legal obstacle on decision to marry therefore it does not violate the Constitution.
Assistant US attorney challenged the constitutionality of rate structure that gives disadvantage to marriage
D computed their tax based on MFS even though they were married
D claimed that marriage penalty is unconstitutional b/c it unfairly discriminates against working married couples in violation of the Equal Protection Clause of the 14th Amendment
Right to marry is considered “fundamental,” but reasonable regulations that do not SIGNIFICANTLY INTERFERE with the decision to marry may be imposed
Marriage penalty is not a direct legal obstacle therefore does not significantly interfere
Kiddie Tax: I.R.C. §1(g) 
Children under 14 are taxed on “net unearned income” at the parent’s top marginal rate (e.g. interest, dividends).
Designed to eliminate a perceived abuse – that parents would put assets in names of children and therefore income would be taxed at children’s rate or not at all if under standard deduction and personal exemption
Represents a major step toward taxation based on family income
Amount taxed is that in excess of $650 reduced by greater of $650 or amount of
the OWNER of the property must report the G/L
Per Salvatore one issue is who is the owner at the time of the sale.
I-B. DISSOLUTION OF THE FAMILY:
General Rule: taxpayers cannot by private agreement allocate tax consequences
EXCEPTION: Agreements made by divorce or separation agreements re: shifting of income via alimony are effective for tax purposes.
REV. RULING 76-255: 
Determines “who is married”
Legal status of divorce is that no marriage ever existed.
IRC §143(a)(1) provides that determination of whether an individual is married shall be made at the close of the taxable year (ie. 12/31)
However, if never an intention to be unmarried then divorce will not be recognized for tax purposes – i.e. take “vacation” together = “sham”
IRC §6013 permits husband wife to file joint return
Reg. 1.143-1(a) and 1.6013-4(a) provide that an individual shall be considered married even though living apart from spouse unless legally separated under a decree of divorce or separate maintenance.