Definition of Income

[psholtz]

It's common to hear in Patriot Circles that the IRC doesn't define the word "income"..

Now, glancing through Title 26, we see that terms such as "gross income", "adjusted gross income", "taxable income", etc are all defined:

http://www.law.cornell.edu/uscode/26...30_B_40_I.html

My question is: is the idea that "income" isn't defined in the IRS just a Patriot Myth, or does it stem from the fact that all these definitions given above (gross income, adjusted gross income, taxable income, etc) are all defined circularly in terms of this abstract concept of "income" - a concept which itself is *not* defined in the IRC?

[Smith]

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.

[Smith]

Clearly, the definition of corporate income means a gain or profit received from an excise taxed activity. But does this same definition apply to individual income tax? To the Supreme Court again:

Merchants' Loan & Trust Co. v. Smietanka 255 U.S. 509 (1921) "It is obvious that these decisions in principle rule the case at bar if the word "income" has the same meaning in the Income Tax Act of 1913 that it had in the Corporation Excise Tax Act of 1909, and that it has the same scope of meaning was in effect decided in Southern Pacific Co. v. Lowe 247 U.S. 330, 335, where it was assumed for the purposes of decision that there was no difference in its meaning as used in the act of 1909 and in the Income Tax Act of 1913. There can be no doubt that the word must be given the same meaning and content in the Income Tax Acts of 1916 and 1917 that it had in the act of 1913. When to this we add that in Eisner v. Macomber, supra, a case arising under the same Income Tax Act of 1916 which is here involved, the definition of "income" which was applied was adopted from Strattons' Independence v. Howbert, arising under the Corporation Excise Tax Act of 1909, with the addition that it should include "profit gained through sale or conversion of capital assets," there would seem to be no room to doubt that the word must be given the same meaning in all the Income Tax Acts of Congress that was given to it in the Corporation Excise Tax Act, and that what that meaning is has now become definitely settled by decisions of this Court."

The word "income" has the same meaning in ALL the income tax acts of Congress. That meaning has been declared to be corporate profits and gains and has been definitely settled by the Supreme Court. So, did you have income that is taxable? Did you have a gain or profit from a corporate activity? Remember that the income tax is an excise tax on the doing of business in a corporate capacity. That is the ONLY way that you can receive taxable income, as legally defined by the Supreme Court.

If you relied on these never overturned Supreme Court rulings in your beliefs, does your reliance on these plain rulings constitute a frivolous position? The IRS says it does!

So, if you had NO corporate income tax liability for this year, you had zero "income" as legally defined by the U.S. Supreme Court. A corporation is NOT taxed on ALL its income, from whatever source. It is only taxed on it's profit. If that is the case then why are YOU taxed on ALL your income from whatever source? You are also allowed to deduct SOME expenses. Does that mean that if you work for a corporation and you exchange 40 hours of your labor for $600, that you had $600 of profit, minus deductions? If a corporation exchanges $600 for 40 hours of your labor, did they also have a profit? NO! They can claim ALL your labor as a deductible operating expense. So why is it that why you exchange one property (your labor) for another property ($600) that in that exchange, you had a profit and the corporation had a deduction? Why is it a profit for you but not for the corporation? The answer is that it is not a profit for EITHER of you! And therefore it is not taxable income, as defined by the Supreme Court.

The Supreme Court has ruled:

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. . . .taxes upon rents and profits of real estate and upon returns from investments of personal property (labor) were in effect direct taxes upon the property from which the income arose, . . . that Congress could not impose such taxes without apportioning them among the states"

The Supreme Court has plainly stated that an individual's income cannot be taxed directly: But an individual's income CAN be taxed with an excise tax, IF it was received in a corporate activity. More on this later.

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.

Corporate "income" (profits and gains) CAN be taxed with an excise tax, but the income itself is not taxed because it is property. Therefore income tax is not on income, it is on profits. It is not an income tax law, it is a profits tax law. Are you engaged in, or did you receive income in connection with, any corporate activities? Receipts received from labor or private investments are not corporate "income" and therefore do not fall within the legal definition of "income" as defined by the Supreme Court.

[Smith]

SUMMARY

"Income" is legally defined as a corporate gain of profit in the Internal Revenue Code. Nowhere is there any different definition.

The definition of income used in the Corporate Excise Tax Act of 1909 is the same definition used in ALL the income tax statutes.

"Gross income" would then be the total income of a corporation, from all sources.

"Taxable income" would therefore be corporate gross income, minus allowable deductions. Also known as profit. If a corporation had no profit, then it had no taxable income. If you are an officer of a corporation, then you had individual income that is taxable.

Anytime the Internal Revenue Code mentions the word "income" it is talking about corporate income.

More info on this is in the chapter on the 16th Amendment.

[Smith]

To really see how we really got screwed read this ..

http://www.redamendment.net/main.php

[Lawdog]

The argument that federal income tax applies only to corporate profits is a 100% loser argument. From http://evans-legal.com/dan/tpfaq.html#corporations

This claim appears to be based on a strange chain of “logic.”

As noted above, Congress enacted taxes on the incomes of corporations from manufacturing and other industries after the Supreme Court held in Pollock that an income tax on incomes from property was unconstitutional unless apportioned, and the Supreme Court held that those corporate excise taxes were constitutional. See, for example, Flint v. Stone Tracy Co., 220 U.S. 107 (1911).

The cases that arose under those corporate tax cases necessarily developed a definition of “income” and, after the adoption of the 16th Amendment and the enactment of general income taxes on both individuals and corporations, courts continued to refer to those definitions of “income” under the corporate excise tax acts. This leads tax protesters to claim that “income” means only “corporate income,” which is ridiculous.

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: ... (4) the Sixteenth Amendment to the Constitution is either invalid or applies only to corporations....”
Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“Plaintiff appears to argue that according to the Sixteenth Amendment, federal income tax is not a direct tax on wages or salaries of individuals, but that it is an excise tax on the privilege of engaging in some privileged or regulated activity. Therefore, according to plaintiff, this ‘indirect excise tax’ can only be imposed on the income of corporations and the dividend income of stockholders. Despite plaintiff’s many case citations allegedly supporting his argument, the Sixteenth Amendment, valid as described above, clearly authorizes Congress to levy a direct income tax upon individuals who are United States citizens.”
Betz v. United States, 40 Fed.Cl. 286, 296 (1998)

“Plaintiff argues ‘income’ should be interpreted as limited to corporate activities, and not include wages. He relies on a series of Supreme Court cases rendered shortly after ratification of the Sixteenth Amendment, and which define the scope of corporate income. NONE of those cases, however, stands for the proposition that only corporate income is taxable. To the contrary, like Richards, supra, many of these cases state: “income may be defined as gain derived from capital, FROM LABOR, OR FROM BOTH COMBINED”. See, e.g., Bowers v. Kerbaugh-Empire Co., 271 U.S. 170, 174 (1926); Merchant’s Loan & Trust Co. v. Smietanka, 255 U.S. 509, 518 (1921); Eisner v. Macomber, 252 U.S. 189, 207 (1919); Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185 (1918); Stratton’s Independence. Ltd. v. Howbert, 231 U.S. 399, 415 (1913) (emphasis added). In particular, in Southern Pacific Co. v,. Lowe, 247 U.S. 330, 333-34 (1918), the Supreme Court quoted the income statute at the time as imposing a tax on “every person residing in the United States . . . upon the entire net income arising and accruing from all sources”. Thus, the plain language of the authorities upon which Plaintiff relies belies his position.”
Tornichio v. United States, 81 AFTR2D PAR. 98-582, KTC 1998-71 (N.D.Ohio 1998), (suit for refund of frivolous return penalties dismissed and sanctions imposed for filing a frivolous refund suit), aff’d 1999 U.S. App. LEXIS 5248, 99-1 U.S. Tax Cas. (CCH) Par. 50,394, 83 AFTR2d Par. 99-579, KTC 1999-147 (6th Cir. 1999). In affirming, the 6th Circuit stated that, “Tornichio’s legal assertions are patently spurious, as it cannot be seriously argued that an individual’s taxable income is based solely on income derived from corporate activities,” and imposed additional sanctions for filing a frivolous appeal.

“[T]he frivolous argument that wages are not income ‘has been rejected so frequently that the very raising of it justifies the imposition of sanctions.’ Connor v. Commissioner, 770 F.2d 17, 20 (2d Cir. 1985); Bey v. New York, 164 F.3d 617, 617 (2d Cir. 1998). Section 61(a) of the Internal Revenue Code clearly defines gross income as ‘all income from whatever source derived,’ which includes wages, salaries, and compensation for services. 26 U.S.C. section 61(a); 26 C.F.R. section 1,61-2(a). The plaintiffs erroneously rely on cases that have defined the scope of corporate income to argue that non-corporate income is not taxable. ‘To the contrary, . . . many of these cases state: “income may be defined as gain derived from capital, from labor, or from both combined.”’ Tornichio [v. United States, 81 AFTR2D PAR. 98-582, KTC 1998-71 (N.D.Ohio 1998), aff’d 1999 U.S. App. LEXIS 5248, 99-1 U.S. Tax Cas. (CCH) Par. 50,394, 83 AFTR2d Par. 99-579, KTC 1999-147 (6th Cir. 1999)], 1998 WL 381304, at *3 (citations omitted). The plaintiffs’ claim that they are owed a refund because they had no tax liability for the years 1993 through 1996 is therefore foreclosed by well- established law.”
Gavigan v. United States, 87 AFTR2d Par. 2001-480, No. 3:99CV697 (DJS) (D.Conn. 11/30/2000), (suit for refund of frivolous return penalties dismissed).

“One of the bases for Plaintiff’s position is that he had no taxable income since “income” can only be a derivative of corporate activity. This position, however, is simply untenable and is directly contrary to the law.”
Myrick v. United States of America, 217 F Supp 2d 979, 2002-2 US TaxCas 650,487, KTC 2002-457, aff’d Docket: 02-16428, KTC 2003-327 (9th Cir. 2003).

See also, Rennie v. Internal Revenue Service, 216 F. Supp. 2d 1078, 1083 (E.D. Cal. 2002), (plaintiff’s “zero” return was frivolous when based on his argument that his wages were not derived from corporate activity); Olson v. United States, 760 F.2d 1003 (9th Cir. 1985); Gattuso v. Pecorella, 733 F.2d 709 (9th Cir. 1984); Jones v. Commissioner, 338 F.3d 463, 466 (5th Cir. 2003).

The claim that “[o]nly certain types of taxpayers are subject to income and employment taxes, such as ... corporations, ..., or similar arguments described as frivolous in Rev. Rul. 2006-18, 2006-15 IRB 743” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

[FreeFromContract]

Originally Posted by Lawdog

The argument that federal income tax applies only to corporate profits is a 100% loser argument.

More distortion, opinion and misdirection from the quatloos crowd. Thanks lapdog.

[Lawdog]

Originally Posted by FreeFromContract

More distortion, opinion and misdirection from the quatloos crowd. Thanks lapdog.

Oh yes. If you consider quoting the decisions of the courts to be distortion, opinion, and misdirection. The fact of the matter is, they are NOT my opinions. This is what the courts have said. Their decisions and opinions matter. Mine do not. As the Supreme Court put it:

It is emphatically the province and duty of the judicial department to say what the law is. Those who apply the rule to particular cases, must of necessity expound and interpret that rule. If two laws conflict with each other, the courts must decide on the operation of each. So if a law be in opposition to the constitution: if both the law and the constitution apply to a particular case, so that the court must either decide that case conformably to the law, disregarding the constitution; or conformably to the constitution, disregarding the law: the court must determine which of these conflicting rules governs the case. This is of the very essence of judicial duty.

Marbury v. Madison, 5 U.S. (1 Cranch) 137 at 177-178 (1803).

This case is over 200 years old. The concept is hardly new. If you don't like the idea that the courts get to interpret the law and expound upon its meaning, then you need to either try to get the Constitution changed, or find another country to live in.

[farmer_giles_of_ham]

It loses because wages are items of corporate profit.

[joseph sugarman]

Lawdog,

There are some statements you have made in this thread, and there is some case law you have provided with which I agree.

There are some statements you have made in this thread, and there is some case law you have provided with which I disagree. Now I recognize that could be just because you have only been able to post one headnote from a case. That headnote may not have been clearly dispositive of the decision.

Perhaps I will have something to add regarding the above at a later date based on your response to that which follows.

You can settle it all for me with just one other case law cite. Please supply any Supreme Court decision, dealing with one human person, or at most a married couple, who have advanced the theory of the definition of income, defined correctly in a series of cases involving corporations, does not apply to him, her or them; and the finding by the Supreme Court it does.

Thank you for your time and effort.