Interesting, isn't it,
for more than 80 years now, the
income tax statutes have generally defined "net
income," or now "taxable income,"
to mean "gross income" minus certain
deductions? And how for decades the federal income tax regulations
have included a general definition of "gross
income" which includes nearly every type of income "unless
exempt from tax by law?
(See Article 31 of Treasury Decision 3640, and section
39.22(a)-1 of the 1956 income tax regulations).
However, from at least 1920 to
1956, the federal income tax regulations generally defining "net
income" (predecessor of "taxable income")
also plainly stated that neither income exempted by statute....OR
by "fundamental law", were to be
included in the computation of "net income"
(see Article 71 of the Treasury Decision 3640, and section 39.21-1
of the 1956 income tax regulations). From at least 1939 to
1956, the regulations reinforced the point. These regulations listed
excluded certain income, and saying that no other types of
income were excluded from "gross income"
EXCEPT those types of income which were
Constitution, not taxable by the
Federal Government" (See section
39.22(b)-1 of the 1956 income tax regulation). ("Fundamental
Law" is an acronym for Constitutional Law).
The general definition of "gross
income" found in the current regulations (and the regulations
under the 1954 Code and ever since) still includes virtually every
type of income, "unless excluded by law"
(26 CFR 1.61-1). However, the current regulations defining
CURIOUSLY no longer mention the
Constitution by name as part of the law
that can exclude income from taxation.
In the current regulations, the closest thing to a "descendant" of
the old Section 39.22(b)-1(1956) is the current 26 CFR 1.265-1(b),
which explains that exempt income is income which is "wholly
from gross income under any provision of Subtitle A" as well
as income "wholly exempt from the taxes
imposed by Subtitle A under the provision of
any other law." But while this shows
that the statutory exclusions found in Subtitle A are not the only
exemptions, even that section does NOT specify
that the Constitution itself is
part of the "any other law" that
exempts some income from taxation.
The fact that the Treasury
lawyers are still aware of these
Constitutional limitations is,
however demonstrated by a relatively obscure section of the current
regulations (26 CFR 1.312-6 (b), which shows that a corporation's
total income (used for a special rule) is the sum of "all
income exempted by statute, income NOT taxable by the Federal
Government under the Constitution,
as well as all items included in gross income under section 61 or
corresponding provisions of prior revenue acts" (emphasis
There are almost no current tax
professionals aware of the fact that there are
(exempting income which is NOT exempted
by any statute). This would NOT be the case had the Treasury lawyers
NOT DELETED from the regulations the
clear statements to that effect in decades of older regulations. the
tax professionals do not apply these
exclusions, because they do NOT know
they exist, because the Treasury lawyers....INTENTIONALLY
hid that fact! No law was passed by Congress authorizing such
a change to the regulations.
(The extent of the damage
resulting from the current tax professionals'
IGNORANCE of the Constitutional
exclusions, and the issue of what the
Constitutional exclusions specifically are,
will be addressed
shortly..... pleased stay tuned .