As we know, Congress devised a very broad definition of income and codified this

Question

As we know, Congress devised a very broad definition of income and codified this definition in Section 61 of the Internal Revenue Code. Explain the Code's definition of income and how it is generally applied to taxpayers. In particular, explain how the Code's definition of income is different than other potential definitions of income, such as the economic concept of income, and use an example to illustrate the difference between the two systems. Explain how the Code approaches whether or not particular items should be included in income and how a taxpayer's taxable income is generally determined under the Code.

Explanation / Answer

As per the section 61 of IRS income is gross income and it defines income as ‘incomes derived from all sources are taxable income under the scope of the IRS, except those which are not specifically excluded from the list provided in this section’. The purpose of this section is to minimize the scope of avoidance of tax.

‘As per the economics concept the income is the amount a person or a firm spent during the period and is wealthy at the end of the period as it was at the beginning of the period’.

The difference is explained below.

The economic concept of income considers consumption of a person or a firm as an income whereas IRS provides some exclusion, income from some sources is nontaxable. For example, certain real estate exchanges are not taxable.

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