What Exactly is Gross Income? Everything, Including the Kitchen Sink

26 U.S.C. §61 states:

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

This is one of the worst sentences ever written.  The definition of gross income – the sentence’s main idea -- is buried between two prepositional phrases.  The second phrase’s word order is awkward.  Worst of all, the definition contains the word it’s defining.  The editorial issues could be forgiven if this were a minor code section.  But, §61 is a bedrock concept of the tax code.  It should be crystal clear.

However, the horrible wording of §61 is what we have to deal with, so let’s return to it, starting with the primary clause: gross income means all income from whatever source derived.       

The subject phrase “gross income” is a term of art, used throughout the tax code and business.  Income is, “the amount of money or its equivalent received during a period of time in exchange for labor or services.”[1]  The phrase “or its equivalent” implies an exchange of anything of value, a fact specifically addressed in the Treasury Regulations.[2]  The word “gross” means, “Exclusive of deductions.”[3]

In the predicate, we’re stuck with the same word as in the subject.  But this time it’s modified by the adjective “all” which means, “the entire or total number, amount, or quantity of.”[4]  As if this weren’t a broad enough definition, the statute also contains this phrase: “from whatever source derived.”  The preposition “from” means, “… to indicate a source.”[5]  There, the word source is modified by the adjective, “whatever,” which means, “everything or anything.”[6]
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The purpose of the statute is to provide the broadest possible of income, forcing the taxpayer to include every item of income unless its specifically excluded by statute.  This reading is supported by caselaw as well as the tax code’s outline:

Above is an outline of subchapter B of the code, which includes §61-§291.  Part I defines the various types of income while Part III specifically excludes certain types of income.  The implication of this outline is that the taxpayer includes every source of income into gross income and then items identified in Part III.  If an item isn’t mentioned in that part, it must be gross income.               


[1] The American Heritage Dictionary, Second Edition, page 651 © 1985

[2] See Treas. Reg. §1.61-2(d)

[3] American Heritage, p. 578

[4] Id at 94

[5] Id 536

[6] Id at 1374