Close the Yield Exemption Loophole Created by Childs

6 Pages Posted: 3 Dec 2009

See all articles by Gregg D. Polsky

Gregg D. Polsky

University of Georgia School of Law

Brant J. Hellwig

Washington and Lee University - School of Law

Date Written: June 1, 2009


The proposal would reverse the holding of Childs v. Commissioner, 103 T.C. 634 (1994), and clarify that a contractual payment obligation received by a service provider is subject to immediate taxation under section 83 if the obligor is a person other than the recipient of the service provider’s services. As a result, the proposal would ensure the appropriate taxation of investment income in structured payment arrangements. The proposal is based on a more comprehensive article by the authors, forthcoming in volume 51 of the Boston College Law Review, titled ‘‘Taxing Structured Settlements,’’ a draft of which is available at

The proposal is made as a part of the Shelf Project, a collaboration by tax professionals to develop and perfect proposals to help Congress when it needs to raise revenue. Shelf Project proposals are intended to raise revenue without raising tax rates, because the best systems have taxes that are unavoidable to reach the lowest feasible tax rates. Shelf Project proposals defend the tax base and improve the rationality and efficiency of the tax system. Given the calls for economic stimulus, some proposals may stay on the shelf for a while. A longer description of the Shelf Project is found at ‘‘The Shelf Project: Revenue-Raising Proposals That Defend the Tax Base,’’ Tax Notes, Dec. 10, 2007, p. 1077, Doc 2007-22632, or 2007 TNT 238-37.

Shelf Project proposals follow the format of a congressional tax committee report in explaining current law, what is wrong with it, and how to fix it.

Keywords: contractual obligation payment, Section 83

JEL Classification: H20

Suggested Citation

Polsky, Gregg D. and Hellwig, Brant J., Close the Yield Exemption Loophole Created by Childs (June 1, 2009). Tax Notes, Vol. 123, No. 9, pp. 1141-1145, June 1, 2009; The Shelf Project. Available at SSRN:

Gregg D. Polsky (Contact Author)

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States

Brant J. Hellwig

Washington and Lee University - School of Law ( email )

Sydney Lewis Hall
Lexington, VA 24450
United States

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