Rev. Rul. 55-2

Advice has been requested whether accounts receivable transferred to an irrevocable trust created for the benefit of a taxpayer's minor child are upon collection taxable to the grantor or to the trust.

A taxpayer whose principal source of income arises from his professional practice as a surgeon created an irrevocable trust for a minor child to insure to him adequate educational and other opportunities and transferred to the trust annual gifts of selected accounts receivable. The trust agreement provides that the funds received upon collection of the accounts receivable and the income therefrom shall be accumulated until the beneficiary reaches the age of 21 years or enters college, whichever may occur first, whereupon the principal and income are to be paid in regular installments. A bank is designated to act as trustee and the taxpayer retains none of the rights of administration or control.

Section 39.22(a)-1 of Regulations 118 provides that gross income includes in general compensation for personal and professional services, business income, profits from sales of and dealings in property, interest, rent, dividends, and gains, profits, and income derived from any source whatever unless exempt from tax by law.

Payments for personal services are always due primarily to the person rendering the services. He remains `the owner of the right or title from which the income springs.' See A. D. Saenger et al . v. Commissioner , 69 Fed.(2d) 631; Edward J. Luce et al. v. Burnet , 55 Fed.(2d) 751. When such earnings are assigned the assignee takes as representative of the assignor and the earnings continue to be taxable to him. In Helvering v. Paul R. G. Horst , 311 U.S. 112, Ct. D. 1472, C.B. 1940-2, 206, the Surpreme Court said: `The power to dispose of income is the equivalent of ownership of it. The exercise of that power to procure the payment of income to another is the enjoyment and hence the realization of the income by him.' See also Lucas v. Guy C. Earl , 281 U.S. 111 and Helvering v. Gerald A. Eubank , 311 U.S. 122, Ct. D. 1473, C.B. 1940-2, 209.

Accordingly, it is held that unpaid accounts receivable which represent compensation for personal services transferred by a taxpayer to an irrevocable trust for the benefit of his minor child are upon collection taxable to the taxpayer-grantor and not to the trust