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of Taxable Income
26 USC Part II - ITEMS SPECIFICALLY
INCLUDED IN GROSS INCOME
26 USC § 83 - Property transferred in connection
with performance of services
(a) General rule
If, in connection with the performance of services, property is transferred to any
person other than the person for whom such services are performed, the excess of—
(1) the fair market value of such property (determined without regard to any restriction
other than a restriction which by its terms will never lapse) at the first time the rights of
the person having the beneficial interest in such property are transferable or are not
subject to a substantial risk of forfeiture, whichever occurs earlier, over
(2) the amount (if any) paid for such property, shall be included in the gross income
of the person who performed such services in the first taxable year in which the
rights of the person having the beneficial interest in such property are transferable
or are not subject to a substantial risk of forfeiture, whichever is applicable. The
preceding sentence shall not apply if such person sells or otherwise disposes of such
property in an arm’s length transaction before his rights in such property become
transferable or not subject to a substantial risk of forfeiture.
(b) Election to include in gross income in year of transfer
(1) In general
Any person who performs services in connection with which property is transferred to
any person may elect to include in his gross income for the taxable year in which such
property is transferred, the excess of—
(A) the fair market value of such property at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms will never lapse), over
(B) the amount (if any) paid for such property.
If such election is made, subsection (a) shall not apply with respect to the transfer of such
property, and if such property is subsequently forfeited, no deduction shall be allowed in
respect of such forfeiture.
An election under paragraph (1) with respect to any transfer of property shall be made in
such manner as the Secretary prescribes and shall be made not later than 30 days after the
date of such transfer. Such election may not be revoked except with the consent of the
(c) Special rules
For purposes of this section—
(1) Substantial risk of forfeiture
The rights of a person in property are subject to a substantial risk of forfeiture if such
person’s rights to full enjoyment of such property are conditioned upon the future
performance of substantial services by any individual.
(2) Transferability of property
The rights of a person in property are transferable only if the rights in such property of
any transferee are not subject to a substantial risk of forfeiture.
(3) Sales which may give rise to suit under section 16(b) of the Securities Exchange
Act of 1934
So long as the sale of property at a profit could subject a person to suit under section
16(b) of the Securities Exchange Act of 1934, such person’s rights in such property are—
(A) subject to a substantial risk of forfeiture, and
(B) not transferable.
(4) For purposes of determining an individual’s basis in property transferred in
connection with the performance of services, rules similar to the rules of section 72 (w)
(d) Certain restrictions which will never lapse
In the case of property subject to a restriction which by its terms will never lapse, and
which allows the transferee to sell such property only at a price determined under a
formula, the price so determined shall be deemed to be the fair market value of the
property unless established to the contrary by the Secretary, and the burden of proof shall
be on the Secretary with respect to such value.
If, in the case of property subject to a restriction which by its terms will never lapse, the
restriction is canceled, then, unless the taxpayer establishes—
(A) that such cancellation was not compensatory, and
(B) that the person, if any, who would be allowed a deduction if the cancellation were
treated as compensatory, will treat the transaction as not compensatory, as evidenced in
such manner as the Secretary shall prescribe by regulations,
the excess of the fair market value of the property (computed without regard to the
restrictions) at the time of cancellation over the sum of—
(C) the fair market value of such property (computed by taking the restriction into
account) immediately before the cancellation, and
(D) the amount, if any, paid for the cancellation,
shall be treated as compensation for the taxable year in which such cancellation occurs.
(e) Applicability of section
This section shall not apply to—
(1) a transaction to which section 421 applies,
(2) a transfer to or from a trust described in section 401 (a) or a transfer under an annuity
plan which meets the requirements of section 404 (a)(2),
(3) the transfer of an option without a readily ascertainable fair market value,
(4) the transfer of property pursuant to the exercise of an option with a readily
ascertainable fair market value at the date of grant, or
(5) group-term life insurance to which section 79 applies.
(f) Holding period
In determining the period for which the taxpayer has held property to which subsection
(a) applies, there shall be included only the period beginning at the first time his rights in
such property are transferable or are not subject to a substantial risk of forfeiture,
whichever occurs earlier.
(g) Certain exchanges
If property to which subsection (a) applies is exchanged for property subject to
restrictions and conditions substantially similar to those to which the property given in
such exchange was subject, and if section 354, 355, 356, or 1036 (or so much of section
1031 as relates to section 1036) applied to such exchange, or if such exchange was
pursuant to the exercise of a conversion privilege—
(1) such exchange shall be disregarded for purposes of subsection (a), and
(2) the property received shall be treated as property to which subsection (a) applies.
(h) Deduction by employer
In the case of a transfer of property to which this section applies or a cancellation of a
restriction described in subsection (d), there shall be allowed as a deduction under section
162, to the person for whom were performed the services in connection with which such
property was transferred, an amount equal to the amount included under subsection (a),
(b), or (d)(2) in the gross income of the person who performed such services. Such
deduction shall be allowed for the taxable year of such person in which or with which
ends the taxable year in which such amount is included in the gross income of the person
who performed such services.
Explanation of Section 83
Why is it necessary to calculate “Gross Income”? Because you have to calculate
“Gross Income” before you can calculate “Net Income” and ultimately “taxable Income”
and come up with the tax liability supposed in the 1040 Form.
Understanding Section 83 is crucial because it describes what is considered
“Gross Income” whenever there is an “exchange” involved in any transaction.
When you work for somebody and you get “paid”, a key question is, IS THAT
AN EXCHANGE? Would you get paid if you did not work? NO! Would you work if
you did not get paid? NO! So, do you have any questions whether that is an exchange?
I HOPE NOT!
Section 83 says, that “ . . . the excess of-(1) the fair market value of such property
(labor) . . . over (2) the amount (if any) paid for such property (paycheck or agreed
payment), shall be included in the gross income of the person who performed such
services in the first taxable year in which the rights of the person having the beneficial
interest in such property are transferable (the person who provided the labor/time/
effort/skill as property that is permanently gone and cannot be regained or used
again) . . (Court have consistently stated that “labor” is a personal property)
THEREFORE: THE VERY FIRST NUMBER ON THE 1040 INCOME TAX RETURN
IS FALSE (DELIBERATELY MADE AND COVERED UP). IRS WILL NEVER
COMPLAIN IF AND WHEN YOU MAKE THAT BIG MISTAKE IN
CALCULATIONS. IF ALL THE MONEY YOU GOT PAID IS “INCOME” / “GROSS
INCOME” THAT IS TURNED INTO TAXABLE INCOME, THEN YOU HAVE TO
ADMIT THAT YOU WORKED “FOR NOTHING” AND EVERYTHING YOU GOT
PAID WAS A “BONUS” OR PAYMENT “OVER AND ABOVE” WHAT YOU FIRST
AGREED TO AS THE EXCHANGE IN YOUR EMPLOYMENT AGREEMENT.
WHAT IS DEFINED BY DEFINITION AS BENEFITS ARE SUPPOSED TO BE
THOSE “WAGES, SALARIES, AND TIPS” THAT YOU SO GRACIOUSLY
IDENTIFY ON THE VERY FIRST LINE OF THE 1040 FORM. THE IRS NEVER
WANTS YOU TO UNDERSTAND SECTION 83 AND APPLY IT TO YOUR
CALCULATION OF YOUR “GROSS INCOME” AND TO CALCULATE THAT
FAMOUS “TAX”, THAT DOES NOT EXIST IN LAW CALLED “THE INCOME
TAX”. THERE IS A TAX ON “TAXABLE INCOME” (yes!!), BUT NOT ON
“INCOME” (INCOMING MONEY FLOW).
KEY ELEMENTS OF UNDERSTANDING –
INTERPRETATION – PLUS THE RULES
Title 1, § 103. Enacting or resolving words after first section
No enacting or resolving words shall be used in any section of an Act or
resolution of Congress except in the first.
§ 104. Numbering of sections; single proposition
Each section shall be numbered, and shall contain, as nearly as may be, a
single proposition of enactment.
§ 106b. Amendments to Constitution
Whenever official notice is received at the National Archives and Records
Administration that any amendment proposed to the Constitution of the
United States has been adopted, according to the provisions of the
Constitution, the Archivist of the United States shall forthwith cause the
amendment to be published, with his certificate, specifying the States by
which the same may have been adopted, and that the same has become
valid, to all intents and purposes, as a part of the Constitution of the
§ 112. Statutes at Large; contents; admissibility in evidence
… The United States Statutes at Large shall be legal evidence of laws,
concurrent resolutions, treaties, international agreements other than
treaties, proclamations by the President, and proposed or ratified
amendments to the Constitution of the United States therein contained,
in all the courts of the United States, the several States, and the
Territories and insular possessions of the United States. (Key: "Statutes
at Large" is the evidence, not printed code).
Title 2: Congress
Three definitions of “State” for different purposes:
Sec. 431 (Disclose Fed Campaign Funds)
(12) The term "State" means a State of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, or a territory or possession of
the United States.
Sec. 658 (Part B – Federal Mandates)
(12) State The term "State" has the same meaning as defined in section
6501(9) of title 31.
CHAPTER 65—INTERGOVERNMENTAL COOPERATION (§§ 6501–6508)
31 U.S. Code § 6501 - Definitions
In this chapter—
(9) “State” means a State of the United States, the District of Columbia, a
territory or possession of the United States, and an agency,
instrumentality, or fiscal agent of a State but does not mean a local
government of a State.
Sec. 1602 (Chapter 26 - Lobbying)
(16) State The term "State" means each of the several States, the District of
Columbia, and any commonwealth, territory, or possession of the United
TITLE 3 : The President (of the District of Columbia)
CHAPTER 1—PRESIDENTIAL ELECTIONS AND VACANCIES
§ 1. Time of appointing electors
The electors of President and Vice President shall be appointed, in each
State, on the Tuesday next after the first Monday in November, in every
fourth year succeeding every election of a President and Vice President.
(President of the District of Columbia)
§ 6 Credentials of electors; transmission to Archivist of the United
States and to Congress; public inspection - It shall be the duty of the
executive of each State, as soon as practicable after the conclusion of the
appointment of the electors in such State by the final ascertainment, under and in
pursuance of the laws of such State providing for such ascertainment, to
communicate by registered mail under the seal of the State to the Archivist of the
United States a certificate of such ascertainment of the electors appointed, setting
forth the names of such electors and the canvass or other ascertainment under the
laws of such State of the number of votes given or cast for each person for whose
appointment any and all votes have been given or cast; and it shall also thereupon
be the duty of the executive of each State to deliver to the electors of such State, on
or before the day on which they are required by section 7 of this title to meet, six
duplicate-originals of the same certificate under the seal of the State; and if there shall
have been any final determination in a State in the manner provided for by law of a
controversy or contest concerning the appointment of all or any of the electors of such
State, it shall be the duty of the executive of such State, as soon as practicable after such
determination, to communicate under the seal of the State to the Archivist of the United
States a certificate of such determination in form and manner as the same shall have been
made; and the certificate or certificates so received by the Archivist of the United States
shall be preserved by him for one year and shall be a part of the public records of his
office and shall be open to public inspection; and the Archivist of the United States at the
first meeting of Congress thereafter shall transmit to the two Houses of Congress copies
in full of each and every such certificate so received at the National Archives and
§ 21. Definitions
As used in this chapter the term—
(a) “State” includes the District of Columbia.
(b) “executives of each State” includes the Board of Commissioners of the
District of Columbia.