Attribution Rules
Attribution Rules are rules that protect against tax fraud by investors. These provisions prevent the transfer of assets (by investors) to family members in lower tax groups[1][2][3][4]:
- "Attribution is the concept of treating a person as owning an interest in a business that is not actually owned by that person. Attribution may result from family or business relationships".
- "Each rule is a combination of choices in the following four domains: unit of analysis (patient versus episode of care); signal for responsibility (professional costs versus number of evaluation and management visits); number of physicians that can be assigned responsibility (single physician versus multiple); and minimum threshold for assigning responsibility (majority of visits or costs versus plurality of visits or costs)" .
- "Attribution rules are necessary to meet the strong incentive to avoid the punitive personal holding company provisions and the relative ease with which options can be used to evade the 50% ownership test".
- "Option attribution rules should be sufficiently broad to prevent tax avoidance, but sufficiently narrow to avoid encompassing arrangements not motivated by a desire to manipulate stock ownership".
Definition of Attribution
Attribution refers to assigning certain features to a person or object. It can also be used to describe the reason (certain actions) that affect an event. "The concept of attribution (constructive ownership) is one of the most difficult concepts to understand and correctly apply in tax law today. Attribution is the imposition of stock ownership upon an individual or entity from another individual or entity for taxation purposes.' This concept is further complicated when the already attributed stock is reattributed to a third individual or entity" [5].
Stock Attribution Rules
Stock attribution rules - to qualify for deal or trade treatment, a stock recovery for the most part must result within the considerable lessening within the shareholder's possession intrigued n the corporation. Within the nonattendance of this diminishment in proprietorship intrigued, the recovery continues are saddled as profit salary. In detenmining whether a stock recovery has suffi-cientlhy diminished a shareholder's intrigued, the stock possessed by certain related parties is atuributed to the recovering shareholder. This the stock attribution rules must be considered in applying the stock recovery arrangements. Beneath these rules related parties are characterized to incorporate the taking after family individuals life partners, children, grandchildren and guardians. Attribution moreover takes put from and to organizations domains, trusts, and corpoations (50 percent or more proprietorship required within the case of customary enterprises)[6].
Examples of Attribution Rules
- Spousal Attribution Rule: This rule states that any income earned by a couple’s investments will be attributed to the spouse with the highest income, regardless of who made the investments.
- Family Attribution Rule: This rule states that any income earned from investments made by a family member will be attributed to the family member with the highest income.
- Corporate Attribution Rule: This rule states that any income earned from investments made by a corporation will be attributed to the shareholders of the corporation, regardless of who made the investments.
- Trust Attribution Rule: This rule states that any income earned from investments made by a trust will be attributed to the trust’s beneficiaries, regardless of who made the investments.
- Charitable Attribution Rule: This rule states that any income earned from investments made by a charity will be attributed to the charity, regardless of who made the investments.
Advantages of Attribution Rules
Attribution Rules are an important tool used to protect against tax fraud by investors. These rules help to ensure that investors cannot transfer assets to family members in lower tax brackets in an attempt to reduce their own tax burden. There are several benefits to using Attribution Rules:
- Attribution Rules create a more equitable tax system, as they prevent wealthy investors from avoiding taxes by transferring assets to family members in lower tax brackets.
- These rules help to reduce the amount of tax fraud, as investors are less likely to attempt to avoid taxation if they know that their assets will be attributed to them regardless of how they are transferred.
- Attribution Rules also help to ensure that investors are not able to benefit from tax loopholes, as any assets transferred to family members will be attributed to the original investor.
- Lastly, Attribution Rules ensure that the government is able to collect the correct amount of taxes from individuals, as any assets transferred will still be taxed according to the original investor's tax bracket.
Limitations of Attribution Rules
Attribution Rules are an important part of tax law that aim to protect against tax fraud by investors. They prevent the transfer of assets to family members in lower tax groups. However, there are some limitations to these rules:
- Attribution Rules only apply to certain types of transfers. Generally, they only apply to transfers of income and capital gains, as well as gifts.
- Attribution Rules can only be applied to family members, not to other individuals or entities.
- Attribution Rules only apply to transfers of assets that are made for tax avoidance purposes.
- Attribution Rules cannot be applied retroactively. Any transfers of assets that were made before the rule came into effect are not subject to the rule.
- Attribution Rules are not applicable to transfers between spouses or civil partners.
- Attribution Rules may be overridden by other tax laws, or by the discretion of the tax authority.
Overall, Attribution Rules are an important part of tax law, but they are limited in their scope and effectiveness.
One way to protect against tax fraud by investors is through Attribution Rules. Other approaches include:
- Setting a limit on the amount of income that can be transferred from one individual to another in a single year. This prevents investors from transferring large amounts of income to family members in lower tax groups to avoid taxation.
- Requiring that the recipient of the income disclose the source and amount of the income. This ensures that the government is aware of any transfers of income that may be an attempt to avoid taxes.
- Requiring that investors and family members in lower tax groups disclose the reason for any transfers of income. This helps to ensure that any transfers are legitimate and not an attempt to avoid taxes.
- Establishing reporting requirements for transfers of income. This helps to ensure that the government is aware of any transfers of income that may be an attempt to avoid taxes.
In summary, Attribution Rules and other approaches, such as setting a limit on the amount of income that can be transferred, requiring disclosure of the source and amount of the income, requiring disclosure of the reason for any transfers, and establishing reporting requirements, can help protect against tax fraud by investors.
Footnotes
| Attribution Rules — recommended articles |
| Accumulated Earnings Tax — Entity theory — Judicial precedent — Corporate trustee — Nominee shareholder — Dual insurance — Spendthrift clause — Disclaimer trust — Non delegable duty |
References
- Lawson L., Naleson J., (2016), Chapter 7: Controlled and Affiliated Service Groups, Internal Revenue Service Tax Exempt and Government Entities
- Mehrotra A. , Adams J. L., Thomas J. W., McGlynn E. A., (2010), The Impact of Different Attribution Rules on Individual Physician Cost Profiles, "Annals of Internal Medicine". 152(10): 649-654.
- Sunukjian A., (1989), Family Attribution, "Akron Tax Journal", Vol. 6, Article 8
- Willis E., Hoffman W., Maloney D., Raabe W., (2010), Comprehensive Volume, South-Western Federal Taxation
- Winston J. G., (1977), Attribution of Stock Ownership from Stock Options Under the Internal Revenue Code, The University of Chicago Law Review
Author: Magdalena Łach
