TAXABLE INCOME

By Roswell Magill '16, Ronald Press, New York, 1936. pp. ix, 437. 15.00.

This is a study of the legal interpretation of the meaning of income in the field of taxation. It is based upon a critical analysis of tax legislation, administrative regulations, and court decisions.

The study is prefaced by a consideration of the differences between economic and legal definitions of income and the factors which condition legal definitions such as popular conceptions, accounting practice, and administrative limitations. Since the prime distinction between the economic concept such as that advanced by Professor Haig and the concept of the Supreme Court is that income must be severed from capital, or "realized," in order to be taxable, the author devotes nearly a half of the book to a formulation of the legal ideas of realization as developed by the courts and later by Congress. In the remaining chapters the cases involving particular types of income are treated under two headings: the characteristics of income and the source of the payment.

The wide range of the decisions precludes a definition which is both succinct and accurate. Indeed, the Supreme Court appears to have abandoned the attempt to decide cases by deduction from its own brief and cryptic definition, namely, that income is the gain derived from capital and labor including profit from a sale of capital assets. But the author does submit an outline of the outer boundaries of the term "income" as used in the Sixteenth Amendment. Significant in this outline are the propositions that the tax can be measured by gross income as contrasted with net income, that the gain from property interests received having a money value and differing in kind or in extent from those previously held is income, that income belongs to the person who earns it or controls the investment which produced it, and that income includes any increase in economic worth resulting from the discharge of indebtedness or recognized obligations to support one's family. Congress has never exercised its full power to tax gross income, having granted quite liberal deductions in calculating taxable net income. However, in other directions the Court has expanded its original concept of income to give effect to the desire of Congress to prevent tax avoidance. The author concludes that the legal concept of income is changing as conditions change and that it seems to be expanding under the impact of legislative fiat.

Professor Magill has performed a great service in so intelligently analyzing and integrating the decisions and legislation in the field. His scholarly treatment of this difficult subject will be of interest to all students of the income tax.