It's Not a Rule: A Better Way to Understand the Definition of Income

Abstract

In a recent article Professor Douglas Kahn explores a particular dissonance between the positive and very broad definition of income that includes all realized accessions to wealth, and what the government can and does actually attempt to tax. He then offers two limiting principles, which he posits operate as exclusions and thus eradicate the gap. Treating income as a standard effectively addresses the puzzling gap between what the broad positive definition of income would seem to include and what is actually taxed. The commercial/noncommercial distinction that shapes Professor Kahn's proposed principles functions as a rule. This article proposes a thought experiment: What if you were to think about the problems Professor Kahn poses from the perspective of income-as-standard? This article considers the precise issues Professor Kahn discusses, but uses an income-as-standard approach. Having contrasted the two approaches, the authors return to the conclusion that standards have important virtues that make them superior to rules for resolving some fundamental questions in federal income tax law.