In the 1929 case of Lucas v. Earl, the United States Supreme Court ruled that income must be taxed to he who earns it. The case involved a man named Earl who had entered into a contract with his wife where they agreed to share their property and earnings equally. When filing taxes, Earl split his income in half and claimed only one portion as taxable on his return while attributing the other half to his wife's separate tax return. The Commissioner of Internal Revenue disagreed with this arrangement, arguing that all of Mr. Earl’s earned income should be taxed under him alone since he was responsible for earning it. The Supreme Court sided with the Commissioner stating that by law an individual cannot assign their earnings to another entity or person in order to avoid taxation; thus establishing what is known as "the assignment of income doctrine". This principle has been used extensively within U.S tax law ever since its establishment through this landmark ruling.

In the dissenting opinion for Lucas v. Earl, Justice Oliver Wendell Holmes Jr. argued that the majority's decision was based on a misinterpretation of tax law and an overemphasis on form rather than substance. He believed that the income in question should be taxed to Mr. Earl alone because he earned it through his personal efforts, regardless of any agreement he had with his wife to share it equally between them. According to Justice Holmes, such agreements do not alter the fact that one person performed work and received payment for it; therefore, they should not affect how income is taxed under federal law either.