Tuesday, March 6, 2012

Section 61 Taxable Income

All Income is Taxable § 61

Source is always irrelevant under the definition of gross income (§ 61) However, source may become relevant because some other Code section excludes receipts from a particular source from gross income. When a taxpayer is in receipt of an economic benefit, Congress might decide to  exclude that benefit from the taxpayer’s gross income for either two types of reasons:  Because it believes benefits from a particular source should not be taxed, OR; Because it believes a particular type of non-cash benefit should not be taxed.

From an efficiency standpoint (although not fairness standpoint) the best tax is one that does not depend on choices made by the taxpayer; since such a tax is not based on taxpayer behavior, it cannot inefficiently discourage any behavior. Windfall arrives without any effort on taxpayer’s part, so a tax on windfalls is especially attractive from an efficiency view because it does not discourage anything.4 In the absence of any specific inclusion, go back to § 61 and read the rule very broadly. “Treasure Trove” = Income


a.    Undeniable Accessions to wealth
b.    Clearly realized
c.    And over which the taxpayers have complete dominion.

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