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Internal Revenue Code section 61
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<h2 id="scope">Scope</h2> <p>Section 61 contains a rare example of <i>intensive redundancy</i>, or <i>emphatic redundancy</i>, in the <a href="/facts/Internal_Revenue_Code/AKPavAh6">Internal Revenue Code</a>. That is, the parenthetical phrase "but not limited to" redundantly intensifies the significance of the phrase "all income" and the phrase "from whatever source derived." Under ordinary rules of statutory construction the list of specific items of income would not, even in the absence of the parenthetical intensive, be considered a complete list of all items of income included in "gross income" under the definition. The use of the word "including" also highlights this expansive definition of "gross income." Under Internal Revenue Code <a href="https://www.law.cornell.edu/uscode/text/26/7701(c)">§ 7701(c)</a>, "[t]he terms 'includes' and 'including' when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined." Under the 1959 U.S. Supreme Court case of <i>Sims v. United States</i>, the terms "includes" and "including" in section 7701 are terms of expansion, not terms of exclusivity.<a class="footnote-ref" id="fnref:2" href="#fn:2"><sup>2</sup></a> </p><p>The phrase "except as otherwise provided in this subtitle" generally refers to the items of income that are excluded from "gross income" under Internal Revenue Code provisions such as sections 101 through 140. For example, <a href="https://www.law.cornell.edu/uscode/text/26/101">§ 101</a> excludes certain life insurance proceeds received by reason of the death of the insured. <a href="https://www.law.cornell.edu/uscode/text/26/102">§ 102</a> excludes certain gifts and inheritances. <a href="https://www.law.cornell.edu/uscode/text/26/103">§ 103</a> excludes interest income on state and municipal bonds. <a href="https://www.law.cornell.edu/uscode/text/26/104">§ 104</a> excludes certain amounts received on account of injuries or sickness. </p> <h2 id="types-of--61-income">Types of § 61 income</h2> <p>Section 61 lists examples of items that are taxable under the Code, including "<a href="/facts/Wage/3fS9dRMf">Compensation for services</a>, including fees, <a href="/facts/Commission_(remuneration)/wclwvzh3">commissions</a>, <a href="/facts/Fringe_benefit/ncKu1HYW">fringe benefits</a>, and similar items"; "Gross income derived from business"; and "Gains derived from dealings in property". Other examples of income listed in section 61 include <a href="/facts/Interest/qfNEuKg0">interest</a> and <a href="/facts/Dividends/Na89kYjp">dividends</a>, <a href="/facts/Renting/3b8gwd3I">rent</a>, <a href="/facts/Royalty_payments/8caVPHCP">royalty payments</a>, <a href="/facts/Alimony/K2J0gFrB">alimony</a> payments; <a href="/facts/Life_insurance/WEtqgGoj">life insurance</a>, <a href="/facts/Pensions/7oAQS2wN">pensions</a>, and <a href="/facts/Inheritance/6NR9DBBP">inheritances</a>. Eligible sources of gross income may be located in section 861. </p> <h3>Compensation for services</h3> <p>Income from <a href="/facts/Wage/3fS9dRMf">Compensation for services</a> include fees, <a href="/facts/Commission_(remuneration)/wclwvzh3">commissions</a>, <a href="/facts/Fringe_benefit/ncKu1HYW">fringe benefits</a>, and similar items. The employer may also compensate the employee-taxpayer indirectly. </p><p>A taxpayer may receive taxable income from the taxpayer's employer when the employer pays the taxpayer's taxes. In 1929, the <a href="/facts/United_States_Supreme_Court/rJHothwW">United States Supreme Court</a> decided the case of <i><a href="/facts/Old_Colony_Trust_Co._v._Commissioner/rSsJqDSg">Old Colony Trust Co. v. Commissioner</a></i>.<a class="footnote-ref" id="fnref:3" href="#fn:3"><sup>3</sup></a> The <a href="/facts/Employer/pqEUAhNv">employer</a> paid incomes taxes on behalf of an <a href="/facts/Employee/pqEUAhNv">employee</a>, and the Court questioned whether that payment constituted additional taxable income to the employee. The Court decided that the payment constituted income to the employee because "the discharge by a third person of an <a href="/facts/Obligation/FXaDeU8v">obligation</a> to him is equivalent to <a href="/facts/Receipt/JN7TNeL6">receipt</a> by the person taxed." Thus, even when a taxpayer does not directly receive compensation for services, the compensation may be considered gross income if the payment releases the taxpayer from an obligation. </p><p>The issue of whether indirect payments for services should be included in gross income arose again in <i>McCann v. United States</i>.<a class="footnote-ref" id="fnref:4" href="#fn:4"><sup>4</sup></a> In <i>McCann</i>, the court had to decide whether travel <a href="/facts/Expenses/cWV3oQxC">expenses</a> paid by an employer to enable an employee to attend a company conference were part of the employee's gross income. The company provided the travel <a href="/facts/Award/rII9lQH2">award</a> to the employee for good work in increasing net sales during 1972. The court held that the travel expenses were compensation to the employee for services rendered to the company during 1972 and should be included in gross income. Therefore, when a company pays travel expenses, a taxpayer must include such compensation in gross income when the <a href="/facts/Excursion/c7r5evba">excursion</a> is viewed as a reward for outstanding employee success within the company. </p><p>Similar to <i>McCann</i>, the issue in <i><a href="/facts/United_States_v._Gotcher/GFRhkg1H">United States v. Gotcher</a></i><a class="footnote-ref" id="fnref:5" href="#fn:5"><sup>5</sup></a> involved an expense-paid trip. The employer paid for the employee to travel to <a href="/facts/Germany/paluuWBX">Germany</a> to induce the employee to undertake further <a href="/facts/Business/For1e8Nh">business</a> endeavors. The court held that the employee's expenses paid by the employer were not gross income because the "indirect <a href="/facts/Economic/okLWSsEY">economic</a> gain [to the employee was] subordinate to an overall business purpose." However, the court found that the employee's wife, who accompanied her husband on the trip, incurred gross income because the wife's trip was primarily a <a href="/facts/Tourism/x47vNhHj">vacation</a>. As such, a taxpayer does not acquire gross income from an expense-paid trip provided by the employer when the primary and overall purpose relates to business interests. </p> <h3>Business income</h3> <p>Gross income derived from business </p> <h3>Discharge of Indebtedness</h3> <p>One form of income listed in the Code, that of "discharge of indebtedness" is not often considered income by lay persons. If, however, a taxpayer owes a debt to any other party, and that debt is forgiven without being fully repaid, the taxpayer must as a general rule declare the forgiven amount as income, and must pay tax on it.<a class="footnote-ref" id="fnref:6" href="#fn:6"><sup>6</sup></a> </p> <h3>Passive income</h3> <p><a href="/facts/Capital_gain/MKH4Yx0W">capital gain</a>, <a href="/facts/Interest/qfNEuKg0">interest</a> and <a href="/facts/Dividends/Na89kYjp">dividends</a>, <a href="/facts/Royalty_payments/8caVPHCP">royalty payments</a> </p> <h3>Other</h3> <p><a href="/facts/Life_insurance/WEtqgGoj">life insurance</a>, <a href="/facts/Alimony/K2J0gFrB">alimony</a> payments, <a href="/facts/Pensions/7oAQS2wN">pensions</a>, and <a href="/facts/Inheritance/6NR9DBBP">inheritances</a>, <a href="/facts/Renting/3b8gwd3I">rent</a> </p> <h2 id="see-also">See also</h2> <a href="/facts/Wikisource/TrMdylNf">Wikisource</a> has original text related to this article: Internal Revenue Code 61 <ul><li><a href="/facts/Internal_Revenue_Service/GBdRoslU">Internal Revenue Service</a></li> <li><a href="/facts/Taxation_in_the_United_States/Ym3wD9w1">Taxation in the United States</a></li> <li><i><a href="/facts/Zarin_v._Commissioner/AtfC8IB6">Zarin v. Commissioner</a></i></li></ul> <h2 id="notes">Notes</h2> <h2 id="external-links">External links</h2> <ul><li><a href="/facts/Internal_Revenue_Code/AKPavAh6">26 U.S.C.</a> <a href="https://www.law.cornell.edu/uscode/text/26/61">§ 61</a>, Cornell Law School</li></ul> <h2 id="references">References</h2> <ol> <li id="fn:1"><p>Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955) <a href="/wiki/Commissioner_v._Glenshaw_Glass_Co." target="_blank">/wiki/Commissioner_v._Glenshaw_Glass_Co.</a> <a href="#fnref:1" class="footnote-back-ref">↩</a></p></li> <li id="fn:2"><p>Sims v. United States, 359 U.S. 108 (1959) <a href="/wiki/List_of_United_States_Supreme_Court_cases,_volume_359" target="_blank">/wiki/List_of_United_States_Supreme_Court_cases,_volume_359</a> <a href="#fnref:2" class="footnote-back-ref">↩</a></p></li> <li id="fn:3"><p>Old Colony Trust Co. v. Commissioner, 279 U.S. 716 (1929). <a href="/wiki/Old_Colony_Trust_Co._v._Commissioner" target="_blank">/wiki/Old_Colony_Trust_Co._v._Commissioner</a> <a href="#fnref:3" class="footnote-back-ref">↩</a></p></li> <li id="fn:4"><p>McCann v. United States, 81-2 U.S. Tax Cas. (CCH) ¶ 9689 (Ct. Cl. 1981), aff'd, 696 F.2d 1386, 83-1 U.S. Tax Cas. (CCH) ¶ 9153 (Fed. Cir. 1983). <a href="/wiki/CCH_(company)" target="_blank">/wiki/CCH_(company)</a> <a href="#fnref:4" class="footnote-back-ref">↩</a></p></li> <li id="fn:5"><p>United States v. Gotcher, 401 F.2d 118 (5th Cir. 1968). <a href="/wiki/United_States_v._Gotcher" target="_blank">/wiki/United_States_v._Gotcher</a> <a href="#fnref:5" class="footnote-back-ref">↩</a></p></li> <li id="fn:6"><p>This provision does not apply to debts where the amount is unsettled, or to certain debts in bankruptcy, insolvency and certain other limited situations. For example, suppose John claims to be owed $100,000 by Bill, based on a personal injury suffered by John that was caused by Bill. Suppose also that Bill insists that he owes John only $500. If they agree to settle the dispute for $700, Bill (the taxpayer) has not been relieved of any debt that was clearly owed. <a href="#fnref:6" class="footnote-back-ref">↩</a></p></li> </ol>