Defining Income

Abstract

In this article we tackle a fundamental problem in tax law: the resistance of the core concept of “income” to a coherent definition. It has long been recognized that there is a substantial gap between the formal definition of income adopted in 1955 by the Supreme Court in Commissioner v. Glenshaw Glass and the IRS’s actual determinations of what constitutes income. Among various examples described in the article, the IRS has not taxed as income either valuable, record breaking home run baseballs caught by fans or expensive meals provided by lawyers to prospective clients, even though both appear to meet the Glenshaw Glass definition. Scholars have consistently failed either to explain this dissonance or to offer a theoretically and practically satisfying definition of income to replace the one announced in Glenshaw Glass. We do both and more. Specifically, we develop a new way of thinking about definitions in the law – an approach we call “aptness” – and apply this approach to understanding what “income” means in tax law. The aptness of a legal definition describes the extent to which it reflects the values that are important in the relevant field, which in turn minimizes the number of controversial applications of the definition. We conclude that the Glenshaw Glass definition is apt, but in a highly unusual way. Instead of reflecting by its own terms tax law’s defining values, its breadth gives the IRS the flexibility to navigate social opinion regarding income taxation, thereby both providing stability in the administration of the income tax and permitting the evolution of a concept of income that serves the important values – both economic and noneconomic – in taxation.