Jennifer L. Meisner v. United States
133 F.3d 654, 1998 WL 4321 (1998)
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Rule of Law:
Income generated from an assigned income-producing asset is taxable to the assignee, not the assignor, if the assignor retains no power or control over the assigned property or the receipt of the income. Transfers made pursuant to a divorce settlement are akin to arms-length transactions, further supporting taxation to the assignee.
Facts:
- Jennifer Meisner was married to Randall Meisner from 1963 to 1981.
- Randall Meisner held intellectual property rights (licenses and copyrights) related to songs performed by the Eagles, a singing group.
- In 1978, Randall entered a termination agreement with the Eagles, ceding his intellectual property to the Eagles in exchange for a royalties contract entitling him to a portion of proceeds from sales of certain Eagles' recordings.
- In 1981, the Meisners divorced and entered into a property settlement agreement (PSA).
- Under the PSA, Jennifer acquired an undivided forty percent interest in Randall's royalty contract, to be held as her separate property.
- The PSA clarified that Jennifer's rights to the 40% interest were not subject to any re-versionary or contingent interests and would survive her own death as well as Randall's.
- The PSA also provided that Jennifer's 40% share of royalties would be paid directly from the Eagles to Jennifer.
- After the divorce, Randall had no power to affect Jennifer's rights to the royalty payments.
Procedural Posture:
- Jennifer Meisner paid federal income taxes on the royalties she received for the years 1987, 1988, 1990, and 1993.
- In 1994, Jennifer requested a refund of these taxes, claiming the royalties were properly taxable to Randall Meisner, not her.
- A jury trial was held in the United States District Court for the District of Nebraska regarding Jennifer's refund claims.
- At the close of evidence, Jennifer moved for judgment as a matter of law (JMOL).
- The district court denied Jennifer's motion for JMOL, finding a question of material fact still existed.
- The case was sent to the jury with a special verdict form limited to the issue of whether Randall had exercised power or control over Jennifer's royalty rights.
- The jury found that Randall had not exerted power or control over Jennifer's rights, resulting in a verdict for the United States (the government).
- Jennifer Meisner appealed the denial of her motion for JMOL and contested several jury instructions and the verdict form to the Eighth Circuit.
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Issue:
Does a former spouse, who assigns an undivided interest in future royalty payments as part of a divorce settlement, remain taxable on those payments if they retain no power or control over the assigned rights or the receipt of income?
Opinions:
Majority - Hansen, Circuit Judge
No, a former spouse who assigns an undivided interest in future royalty payments as part of a divorce settlement does not remain taxable on those payments if they retain no power or control over the assigned rights or the receipt of income. The court distinguished between an anticipatory assignment of income, where the assignor remains taxable, and an assignment of an income-producing asset, where the income is taxed to the assignee. Citing Commissioner v. Sunnen, the "crucial question" is whether the assignor retains sufficient power and control over the assigned property or the receipt of the income. In this case, Randall unconditionally assigned Jennifer an undivided forty percent interest in the royalty contract, retaining no reversionary interest or ability to affect the value of the rights, nor any power over Jennifer's receipt of the payments, which went directly to her. These facts were found to be more similar to cases where an asset itself was transferred (e.g., Commissioner v. Reece, Greene v. United States) rather than merely the income. Furthermore, the court emphasized that the transfer of rights occurred pursuant to a divorce settlement, which is fundamentally different from a donative transfer (e.g., Helvering v. Horst, Harrison v. Schaffner). Divorce transfers are viewed as "negotiated arms-length transactions between adversaries" that effect a "substantial change in the taxpayer’s economic status," unlike gifts where the donor may still derive enjoyment or benefit from directing income. Therefore, the court concluded that there was sufficient evidence to support the jury's verdict that Randall did not retain power or control, and Jennifer was properly taxed on the royalties.
Analysis:
This case reinforces the critical distinction in tax law between assigning income (taxable to assignor) and assigning an income-producing asset (taxable to assignee), with the assignor's retained "power and control" being the central determinant. It provides significant guidance regarding property divisions in divorce, establishing that such transfers are treated as arms-length transactions, not mere gifts, thereby supporting the allocation of tax liability to the recipient of the income-generating asset. This approach helps ensure that ex-spouses who receive income-producing assets as part of a settlement are the ones responsible for the associated tax burden, provided the transfer is complete and unconditional. The ruling offers clarity for family law attorneys and taxpayers navigating complex asset divisions during marital dissolution.
