WHAT IS INCOME?

There are 4 definitions of income.

1. Haig-Simons
2. Constitutional
3. IRS
4. Glenshaw Glass

Haig-Simons
● Income = Spending + Savings
1. The market value of rights exercised in consumption, and
2. The change in the value of the store of property rights between the beginning and
the end of the period in question (Savings/accumulation)
a. Consumption [C] + Change in new worth [∆NW]
b. Savings includes ordinary savings as well as stock and earning income
on money in bank (accumulation income)
c. Source of income doesn’t matter (stolen, gift, etc.); it only matters if the $
is saved or spent
d. Encourages borrowing
e. Could include gifts, punitives, life insurance
● Examples
○ John paid $100 in wages, spends it on food to eat: Consumption Income
○ John paid $100 in wages, puts in the bank: Savings (accumulation) Income
○ John paid $100 in wages, buys stock: Savings (accumulation) Income

Constitutional: 16th Amendment

● Income, from whatever source derived…
○ This is the broadest of the definitions

IRS Definition
● § 63: Taxable Income defined as: gross income – deductions
● § 61: Gross Income defined [includes the following]
15 enumerated, but not all exclusions/inclusions are enumerated
○ (1) Compensation for services, including fees, commissions, fringe benefits and
similar items;
○ (2) Gross Income derived from business;
○ (3) Gains derived from dealings in property;
○ (4) Interest;
○ (5) Rents;
○ (6) Royalties;
○ (7) Dividends;
○ (8) Alimony;
○ (9) Annuities;
○ (10) Income from life insurance and endowment Ks;
○ (11) Pensions;
○ (12) Income from discharge of indebtedness (CODI);
 ○ (13) Distributive share of partnership gross income;
○ (14) Income in respect of a decedent; and
○ (15) Income from an interest in an estate or trust
● Note: Imputed Income is NOT subject to income under § 61. – narrower than 16th
○ Imputed income: Income without receipt of cash or property not factored into a
Taxpayer’s gross income.
■ Generated in 2 situations
● Self rendered services: Tax-payer performs services for herself;
and
● Owner occupied housing: Tax-payer enjoys rent-free use of
property which she owns
○ Not subject to taxation under IRC. Congress is
encouraging you to do services for yourself
● Difference from HS definition? Realization requirement.
● Also…
○ Treasury Reg. § 1.61-1(a)
■ Income may be realized in the form of services
○ Treasury Reg. § 1.61-2
■ Income from wages, bonuses, tips, etc.
○ Treasury Reg. § 1.61-2(d)(1) Services for Services
■ If 2 people exchange service 4 service, each recognizes income = FMV of
services he receives
■ If services are paid for in property, the FMV of the property taken in
payment must be included in income as compensation
■ If you cook for me chef $800 worth of means I will do legal services in the
amount of $800, both the chef and the lawyer recognize the $800 in
income
○ Treasury Reg. §1.61-14(a)
■ Misc. forms of gross income – punitive damages, illegal gains…
● BUT, under IRC § 102 says gifts are not income, IRC § 104 punitives are income, and
IRC § 101 life insurance is not income.