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Basic grammer you can not use a word in the definition to define itself .
Income is defined as profit separate from principle
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Nowhere in the Internal Revenue Code (IRC) is income defined.
So the big question becomes, what IS income? And did you have any that was taxable?
The word "income" is not defined in the Internal Revenue Code, as the court stated in U.S. v. Ballard 535 F.2d 400 at 404, but the Supreme Court has defined it for us in numerous cases.
Stratton's Independence v. Howbert 231 U.S. 399 (1913) "As has been repeatedly remarked, the corporation tax act of 1909 was not intended to be and is not, in any proper sense, an income tax law. This court has decided in the Pollock Case that the income tax of 1894 amounted in effect to a direct tax upon property, and was invalid because not apportioned according to population, as prescribed by the Constitution. The act of 1909 avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity, measuring, however, the amount of tax by the income of the corporation, . . ."
"As to what should be deemed "income" within the meaning of Sec. 38, it of course need not be such an income as would have been taxable as such, for at that time (the 16th amendment not having been as yet ratified) income was not taxable as such by Congress without apportionment according to population, and this tax was not apportioned. Evidently Congress adopted the income as the measure of the tax to be imposed with the respect to the doing of business in corporate form because it desired that the excise should be imposed, approximately at least, with regard to the amount of benefit presumably derived by such corporations from the current operations of the government."
The Supreme Court defines "income tax", as an excise tax "imposed with respect to the doing of business in corporate form". If you are not engaged in any corporate activities then you are not liable for an "excise income tax." This Supreme Court decision also states that Congress cannot tax an individual's income directly. All direct taxes must be imposed on the states with apportionment. U.S. Constitution Art. 1 Sect 2. Cl. 3 and Sect 9 Cl. 4.
The above case applies to corporations, so if you are not a corporation, then the Corporation Excise tax does not apply to you. The important thing here is the clarification that the income tax is an excise tax, imposed upon the doing of business in corporate form. An the tax is determined by how much income is received. But WHAT is income? The Supreme Court again tells us:
Eisner vs. Macomber 252 U.S. 189 pg 205 (1920) The Sixteenth Amendment must be construed in connection with the taxing clauses of the original Constitution and the effect attributed to them before the Amendment was adopted. In Pollock v. Farmers' Loan and Trust it was held that taxes upon rents and profits of real estate and upon returns from investments of personal property were in effect direct taxes upon the property from which the income arose, imposed by reason of ownership; and that Congress could not impose such taxes without apportioning them among the states according to population, as required by Art 1 Sect. 2 Cl. 3 and Sect. 9 Cl. 4 of the original Constitution.
Afterwards, and evidently in recognition of the limitations upon the taxing power of Congress thus determined, the Sixteenth Amendment was adopted: . . . As repeatedly held, this did not extend the taxing power to new subjects, but merely removed the necessity which might otherwise exist for an apportionment among the states of taxes laid on income. . . . it becomes essential to distinguish between what is and what is not "income', as the term is there used;
After examining dictionaries in common use we find little to add to the succinct definition adopted in two cases arising under the Corporation (Excise) Tax Act of 1909 (Stratton's Independence v. Howbert 231 US 399, 415; Doyle v. Mitchell Bros. Co. 247 US 179, 185)
"Income may be defined as the gain derived from capital, from labor, or from both combined", provided it be understood to include profit gained through a sale or conversion of capital assets, to which it was applied in the Doyle case pp. 183, 185.
"Derived -- from -- capital"; -- "the gain -- derived -- from -- capital," etc. Here we have the essential matter: not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being "derived," that is, received or drawn by the recipient (the Taxpayer) for his separate use, benefit and disposal; -- that is income derived from property. Nothing else answers the description.
That Congress has power to tax stockholders upon their property interests in the stock of corporations is beyond question; and that such interests might be valued in view of the condition of the company, including its accumulated and undivided profits, is equally clear. But this would be taxation of property because of ownership, and hence would require apportionment under the provisions of the Constitution, is settled beyond peradventure by previous decisions of this court.
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