The US Supreme Court Definition of Income

by M. Randolph Hamilton

The term income is defined nowhere in Title 26 of the US Code, which is the law that relates to the "income" tax. The term "income" has repeatedly been held by the courts to indicate "gain on capital" and not receipts, wages or a fee received in exchange for selling an item of property. Since a tax on property would be a direct, unapportioned tax that the US Constitution does not allow, even selling a house for more than you paid for it would be a direct tax on property. As you will see below, the US Supreme Court has ruled, not just once, but repeatedly, that the federal governmnet cannot levee a tax on your property, and ultimately, your labor.

It should also be noted by the reader that a Supreme Court ruling stands forever unless it is specifically overturned by the Supreme Court itself. The legislature cannot legislate law to change the US Constitution and any laws that are passed by the legislative branch that are not within the constraints of the Constitution are null and void as they relate to sovereign people. The reason there are so many laws that appear to be unconstitutional laws is because there are two United States and these laws apply in the federal government's version of the United States. So the laws are not unconstitutional, because the federal government has "exclusive jurisdiction" within its territory.

Some people who want to pass laws outside the constraints of the US Constitution try to claim that it is a "living breathing" document that has to have a new interpretation as time passes. This mode of thinking would simply deem the act of writing the Constitution fruitless. Why bother writing a Constitution if its meaning will change depending on who is reading it this year. Anyone who rises to power could simply rule as a dictator and ignore the Constitution, since he could simply state he doesn't read it that way. It would also require the the courts repeatedly revisit the same issues on which it had previously ruled.

  • EISNER v. MACOMBER , 252 U.S. 189 (1920)

    The 16th Amendment did not increase the federal government taxing power to new subjects.

    Afterwards, and evidently in recognition of the limitation upon the taxing power of Congress thus determined, the Sixteenth Amendment was adopted, in words lucidly expressing the object to be accomplished:
    'The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.'
    As repeatedly held, this did not extend the taxing power to new subjects, but merely removed the necessity which otherwise might exist for an apportionment among the states of taxes laid on income. Brushaber v. Union Pacific R. R. Co., 240 U.S. 1

    The Supreme Court said the Legislature could not change the Constitution

    Congress cannot by any definition it may adopt conclude the matter, since it cannot by legislation alter the Constitution, from which alone it derives its power to legislate, and within whose limitations alone that power can be lawfully exercised.

    Title 26 of the US Code does not define income. As such, the US Supreme Court defined income.

    The government, although basing its argument upon the definition as quoted, placed chief emphasis upon the word 'gain,' which was extended to include a variety of meanings; while the significance of the next three words was either overlooked or misconceived. '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.

  • DOYLE v. MITCHELL BROS. CO. , 247 U.S. 179 (1918)

    Yet it is plain, we think, that by the true intent and meaning of the act the entire proceeds of a mere conversion of capital assets were not to be treated as income. Whatever difficulty there may be about a precise and scientific definition of 'income,' it imports, as used here, something entirely distinct from principal or capital either as a subject of taxation or as a measure of the tax; conveying rather the idea of gain or increase arising from corporate activities.

  • SOUTHERN PAC CO. v. LOWE , 247 U.S. 330 (1918)

    We must reject in this case, as we have rejected in cases arising under the Corporation Excise Tax Act of 1909 (Doyle, Collector, v. Mitchell Brothers Co., 247 U.S. 179, 38 Sup. Ct. 467, 62 L. Ed. --, and Hays, Collector, v. Gauley Mountain Coal Co., 247 U.S. 189, 38 Sup. Ct. 470, 62 L. Ed. --, decided May 20, 1918), the broad content submitted in behalf of the government that all receipts-everything that comes in-are income within the proper definition of the term 'gross income,' and that the entire proceeds of a conversion of capital assets, in whatever form and under whatever circumstances accomplished, should be treated as gross income. Certainly the term 'income' has no broader meaning in the 1913 act than in that of 1909 (see Stratton's Independence v. Howbert, 231 U.S. 399, 416, 417 S., 34 Sup. Ct. 136), and for the present purpose we assume there is no difference in its meaning as used in the two acts.

  • 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, 38 S. Sup. Ct. 540, 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 (38 Stat. 114). 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 Stratton's Independence v. Howbert, supra, 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 of 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.

    In determining the definition of the word 'income' thus arrived at, this Court has consistently refused to enter into the refinements of lexicographers or economists, and has approved, in the definitions quoted, what it believed to be the commonly understood meaning of the term which must have been in the minds of the people when they adopted the Sixteenth Amendment to the Constitution. Doyle v. Mitchell Brothers Co., 247 U.S. 179, 185, 38 S. Sup. Ct. 467; Eisner v. Macomber, 252 U.S. 189, 206, 207 S., 40 Sup. Ct. 189, 9 A. L. R. 1570. (See Above) Notwithstanding the full argument heard in this case and in the series of cases now under consideration, we continue entirely satisfied with that definition, and, since the fund here taxed was the amount realized from the sale of the stock in 1917, less the capital investment as determined by the trustee as of March 1, 1913, it is palpable that it was a 'gain or profit' 'produced by' or 'derived from' that investment, and that it 'proceeded' and was 'severed' or rendered severable from it by the sale for cash, and thereby became that 'realized gain' which has been repeatedly declared to be taxable income within the meaning of the constitutional amendment and the acts of Congress. Doyle v. Mitchell Brothers Co. and Eisner v. Macomber, supra.

    It is elaborately argued in this case, in No. 609, Eldorado Coal & Mining Co. v. Harry W. Mager, Collector, etc., submitted with it, and in other cases since argued, that the word 'income' as used in the Sixteenth Amendment and in the Income Tax Act we are considering does not include the gain from capital realized by a single isolated sale of property, but that only the profits realized from sales by one engaged in buying and selling as a business-a merchant, a real estate agent, or broker- constitute income which may be taxed.

Conclusion

It can be very easily ascertained that the meaning of income did not change after the passage of the 16th amendment. The meaning was decided by the Supreme Court to be the same even after the federal government had passed three separate acts in 1913 (the addition of the 16th Amendment,) 1916 and 1917. Even though the government repeatedly attempted to expand the scope of the word 'income', the Supreme Court repeatedly ruled its meaning was the same.

It is also obvious by the last paragraph in bold in the last case above, that selling one's house for more money than for which it was purchase cannot be construed as gain on capital or capital gains. Even for those who fall under the jurisdiction of the federal government who also sell a house at a later date than it was purchased, do not have to pay a capital gains tax on said house. Just to repeat the specific decision above.

the word 'income' as used in the Sixteenth Amendment and in the Income Tax Act we are considering does not include the gain from capital realized by a single isolated sale of property,

Only when you know the truth and act on the truth will you be free of enslavement. Knowing is nothing without action.

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