Meaning of the term "Income"

The United States Supreme Court DID NOT rule that the meaning of the term "INCOME" for Income Tax purposes is limited to Corporate Profits

by Otto Skinner
(Revised 11-30-98)

The following is my response to another issue in an article written by Irwin Schiff, as published in the AntiShyster News Magazine, Volume 7, No. 2, starting at page 44, in which Schiff has several issues very convoluted. I will now address Schiff's claim regarding the definition of the term "income" for income tax purposes. At pages 44-45, Schiff states:

"Therefore, no unincorporated American can have any "income" subject to an "income" tax, since the word "income," for tax purposes, means a corporate profit."

Schiff, and some other promoters, would lead the patriots to believe that the United States Supreme Court has ruled that the meaning of the term "income" for income tax purposes is limited to gain or profits derived from corporate activities. A careful reading of the court cases will, however, reveal that such a proposition is not true at all.

To support the supposedly "valid argument" claiming that the term "income" for income tax purposes only means corporate profit, the promoters cite the case of Merchant's Loan & Trust Co. v. Smietanka, 255 U.S. 509 (1921) wherein the court held that the word "income":

". . . 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 what that meaning is has now become definitely settled by decisions of this court." Merchant's Loan & Trust Co. v. Smietanka, 255 U.S. 509, 519 (1921).

It is one thing to say that the term "income" must be given the same meaning as was given to it in the Corporation Excise Tax Act. It is entirely another thing to say that the term "income" for income tax purposes only means corporate profit. No place in all of the United States Supreme Court opinions, I submit, will you find where the Court limited the term "income" for income tax purposes to mean corporate profit.

In fact, in Merchant's Loan & Trust Co. v. Smietanka, supra, the Court refers many times to Eisner v. Macomber, 252 U.S. 189 (1920), wherein the United States Supreme Court said:

"For the present purpose we require only a clear definition of the term "income" as used in common speech, in order to determine its meaning in the Amendment...." Eisner v. Macomber, 252 U.S. 189, 206-207 (1920).

The Eisner Court,

After examining dictionaries in common use (Bouv. L.D.; Standard Dict.; Webster's Internat. Dict.; Century Dict.)....
Eisner, supra, at 207,

The Court quite correctly proceeds to define the term "income" for purposes of the Sixteenth Amendment and a so-called "income" tax, as well as for purposes of the Eisner Case, to simply mean profit or gain derived by the person subject to the tax (the "taxpayer") for his separate use and benefit. If you check your dictionaries, you will find that "income" is simply profit or gain.

In other words, if you are subject to the tax, you can use the definition provided by the Eisner Court. If you are not subject to the tax, it doesn't really matter what the term "income" means for income tax purposes. To argue the definition of the term "income" is to argue as if you would be required to make a tax return (i.e., that you are subject to (liable for) the tax) if you just had some of this stuff called "income".

For the reader who might still think it is the property earned that is the subject of the tax, it is important to note that the name "income tax" is merely the name given to a particular excise tax. A taxable activity (never property) is the subject of an excise tax. See Flint v. Stone Tracy Co., 220 U.S. 107, at 151, 154, 165 (1911).

It is also important to note that the requirement to make a tax return is not based upon "income" (profit or gain), but rather it is based upon the "gross income" (gross earnings) of a person who has a "taxable year" and is subject to (liable for) that excise tax. See 26 U.S.C. 6012. Also, see 26 U.S.C. 441(b) and 1313(b).

As to the false proposition that the term "income" for income tax purposes is limited to corporate profits, it is just one more flawed, frivolous argument, which is based on neither fact nor law, and which will, if relied upon, help send more patriots to the poky.

Otto Skinner is the author of the following three books:

The Best Kept Secret, "Taxpayer" V. Nontaxpayer" (1986, revised 1996)	- $24.95
If You Are the Defendant (1989, revised 1996)	- $24.95
The Biggest "Tax Loophole" of All (1997) (A 2 pound book.)	- $39.95

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