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                                 Constitutional Exclusions

  Interesting, isn't it, how 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 statutes which excluded certain income, and saying that no other types of income were excluded from "gross income" EXCEPT those types of income which were "under the 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 gross income 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 excluded 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 added throughout).

  There are almost no current tax professionals aware of the fact that there are Constitutional exemptions (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 Constitutional 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 . 

                             


 
                     

           

 

 
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