FLORIDA TAX REVIEW
Volume 11 2011 Number 5

DEFINING INCOME

by

Alice G. Abreu*

Richard K. Greenstein 

I. DEFINING INCOME THAT is TAXED...................... ....... 300
A. The Definition Expands .......................... 301
B. The Definition Contracts ......................... 307
C. The Definition Fragments ................................ 312

II. DEFINITIONS: A JURISPRUDENTIAL DETOUR ................... 321
A. The Quest for Scientific Precision ................... 321
B. Aptness ..................................... 325

1. Controversial vs. Easy Applications of the Law.........327
2. The Aptness of a Legal Definition... ................ 329
3. Rules and Standards ....................... 330

III. APTNESS IN THE TAX LAW...................................333
A. Values in the Tax Law................... ........ 334
B. The Importance ofRules ................... ....... 336
C. Aptness and Glenshaw Glass............... ............ 339

IV. CONCLUSION ................................................ 348

* Alice G. Abreu is James E. Beasley Professor of Law and Richard K.
Greenstein is Professor of Law at Temple University's Beasley School of Law. We
want to express our deep appreciation to Professor John Prebble of the Victoria
University of Wellington, New Zealand and Dr. Marco Greggi, of the Universita di
Ferrara, Ferrara, Italy, for organizing the Grapperhaus Colloquium on Jurisprudential
Perspectives on Taxation Law in Ferrara, Italy in September, 2010 and inviting us to
present a draft of this article there. The Colloquium inspired our collaboration and
the reactions and comments of the participants in the Colloquium contributed
meaningfully to the development of the article. We are also grateful for the
suggestions and challenging questions posed by our Temple colleagues at two
workshops. We refined our analysis as a result of extensive discussions with our
Temple colleagues Mark Anderson, Jane Baron, Scott Burris, Jeffrey Dunoff, David
Hoffman, Nancy Knauer, Andrea Monroe, Muriel Morisey, and Bill Woodward, as
well as with Steve Cohen, Cliff Fleming, Kristin Hickman, and Marty McMahon.
Finally, it is impossible to overstate the contribution of our students and research
assistants, Albert Antonelli, Allie Misner, Lane Schiff, and Ryan Trifelitti, from
whose insights and dedication we benefitted incalculably. All errors, omissions, and
deficiencies remain ours.

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More than half a century ago in Commissioner v. Glenshaw Glass,
the Supreme Court defined "income," as used in section 61 of the Internal
Revenue Code, as "undeniable accessions to wealth, clearly realized, and
over which the taxpayers have complete dominion."' The Code narrows the
scope of income by providing for specific exclusions but, outside of those
exclusions, the Code's own, self-referential definition-"gross income
means income from whatever source derived" 2 - seems to confirm the
broad scope of the definition.3

The breadth of the Glenshaw Glass definition appears to be nearly
co-extensive with the Haig-Simons definition of income, which is widely
accepted as providing the theoretical foundation for the income tax.4

Accordingly, many tax professionals interpret the language in section 61 and
Glenshaw Glass solely in light of the economic principles reflected in the
Haig-Simons definition.5 The analytical structure for determining what is

1. Comm'r v. Glenshaw Glass, 348 U.S. 426, 431 (1955). Professor Joseph
Dodge has observed that the Court in Glenshaw Glass "does not purport to 'define'
the term 'income.' It only 'translates' the facts of Glenshaw-Goldman into the
legally relevant form of 'realized economic gain of the taxpayer."' Joseph M. Dodge,
The Story of Glenshaw Glass: Towards a Modern Concept of Gross Income, in TAX
STORIES 18 (Paul L. Caron ed., 2d ed. 2009) [hereinafter Glenshaw Glass Story].
Although Professor Dodge is correct that the Court in Glenshaw Glass does not
adopt a formulation that says "we define income as . . . ," courts and scholars
following Glenshaw Glass have uniformly taken the formulation announced in
Glenshaw Glass to be the definition of income and we do likewise here. The title of
Professor Dodge's chapter in TAX STORIES, and indeed, its placement as the first
chapter in that book, suggests that we are not alone.

2. Section 61 provides: "Except as otherwise provided in this subtitle, gross
income means income from whatever source derived, including (but not limited to)
the following items . . . ." I.R.C. § 61. The list of specific inclusions contains
principally receipts that are fairly obviously income, such as compensation for
services. This formulation is not tautological if gross income is viewed as "merely a
phrase indicating a step in the mathematical computation" for which the term
"statutory base" could well be substituted. Stanley S. Surrey & William C. Warren,
The Income Tax Project of the American Law Institute: Gross Income, Deductions,
Accounting, Gains and Losses, Cancellation ofIndebtedness, 66 HARv. L. REv. 761,
771 (1953).

3. The regulations shed a bit of light by including additional specific items,
such as some fringe benefits and treasure trove, Treas. Reg. § 1.61-14, but despite
the tremendous and increasing girth of the Code, the Glenshaw Glass formulation
remains the starting point for defining income.

4. HENRY C. SIMONS, PERSONAL INCOME TAXATION 50 (1938). The
Glenshaw Glass definition differs from Haig-Simons because Glenshaw Glass
requires realization, but its inclusion of all accessions makes it otherwise just as
broad as Haig-Simons. See infra notes 45-46 and accompanying text.

5. In addition, as Zoe and John Prebble have noted, "[t]here is a strong
tradition of construing tax statutes literally," Zoc Prebble & John Prebble, The

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income appears clear and is generally treated as immutable. The analysis
begins with the broad mandate of section 61 and Glenshaw Glass. As long as
there is a realized accession in the economic sense within the taxpayer's
dominion, Glenshaw Glass would seem to provide that there is income
unless, pursuant to the very first words of section 61, there is an exclusion in
the statute. From the time they are introduced to the tax law, students are
taught this analytical structure, and by the time they become practitioners
and then judges or scholars, it is second nature.

The apparent breadth of the Glenshaw Glass formulation seems to
give the Internal Revenue Service (IRS) wide authority to tax accessions to
wealth. Nevertheless, the IRS has sometimes taken the position that a
particular accession is income, only to be rebuffed by a trial or appellate
court and then abandon its position.7 Other times the IRS has chosen not to
take the position that a particular accession is income at all.8 For example,
courts and the IRS have concluded that "imputed" income is not income
even though nothing in the Glenshaw Glass definition specifically excludes
it. 9 Similarly, courts have held that neither meals and lodging provided by an

Morality of Tax Avoidance, 20 CREIGHTON L. REv. 101, 123 (2010), and in this
context there would seem to be scant reason to do otherwise because the statutory
language seems to further the policies that underlie the tax law. For an important
dissenting view, which will be discussed at greater length below, see Lawrence A.
Zelenak & Martin J. McMahon, Jr., Taxing Baseballs and Other Found Property, 84
TAX NOTES 1299 (1999).

6. Even the suggestion of a different approach to defining income is so
anathema to tax scholars that it was described as an "untenable position" that would
result in "Bittker's Quagmire" during the late 1960s when a (CTB) was offered as
the foundation for tax reform. Boris I. Bittker, Comprehensive Income Taxation: A
Response, 81 HARV. L. REv. 1032, 1041 (1968) [hereinafter Bittker's CTB
Response]; see infra Part II. More recently it has been labeled "incoherent." Joseph
M. Dodge, Accessions to Wealth, Realization of Gross Income, and Dominion and
Control: Applying the "Claim of Right Doctrine" to Found Objects, Including
Record-Setting Baseballs, 5 FLA. TAX REv. 685, 691 (2000) [hereinafter Dodge,
Claim of Right]. Indeed, Professors Zelenak and McMahon, whose suggestion that
the analysis of what is income should begin with cash, bringing in property in kind
only as necessary to prevent avoidance, prompted the charge of incoherence,
acknowledge their own late-coming to that position. Zelenak & McMahon, supra
note 5, at 1301 n.13.

7. See Benaglia v. Comm'r, 36 B.T.A. 838 (1937); Gotcher v. United
States, 401 F.2d 118 (5th Cir. 1968).

8. For example, the IRS has not tried to tax support, the value of an
expensive lunch provided by a lawyer to a client, or the value of record breaking
baseballs caught by fans. See infra notes 48, 52, 90-94 and accompanying text.

9. Even Professor Dodge, who asserts the incoherence of the Zelenak and
McMahon approach, acknowledges that psychic benefits and what he refers to as
"hypothetical" or imputed income are not income. See Dodge, Claim of Right, supra

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employer on the employer's business premises for the convenience of the
employer'o nor an expense-paid trip to Germany to inspect VW facilities
provided to a VW dealer to induce him to make an additional investment in
the dealership" were income, and the IRS acknowledges that cash welfare
payments are not income either.12 Sometimes, as in the case of "swag bags"
given to nominees and presenters at the Academy Awards, the IRS has taken
a position consistent with the apparent breadth of Glenshaw Glass,13 but
other times, as in the case of less valuable free samples received by ordinary
people, child support, government transfer payments, government-funded
benefits (such as public education and medical care), or even record-breaking
baseballs caught by baseball fans, it has not.14

While such instances reflect the IRS's and the courts' reluctance to
attempt to implement the full apparent breadth of the Glenshaw Glass
definition of income, neither the courts, nor tax scholars, nor the IRS have
articulated a comprehensive theory that explains all of these specific
outcomes.' 5 Perhaps in reaching these conclusions the courts and the IRS are
being lawless, deliberately ignoring the apparent mandate of Glenshaw
Glass. Or maybe they simply do not understand the breadth of the Glenshaw
Glass definition and are therefore incompetently failing to effectuate it.

note 6, at 692-93. Professors Zelenak and McMahon agree and indeed make the
non-inclusion of imputed income the centerpiece of their claim for non-inclusion of
found property. Zelenak & McMahon, supra note 5, at 1304-05. Every major tax
casebook and treatise acknowledges that imputed income is not income for tax
purposes. See, e.g., DODGE ET AL., FEDERAL INCOME TAX: DOCTRINE, STRUCTURE
AND POLICY 226, 228-31 (3d ed. 2004); MICHAEL J. GRAETz & DEBORAH H.
SCHENK, FEDERAL INCOME TAXATION, PRINCIPLES AND POLICIES 130-33 (6th ed.
2009); KLEIN ET AL., FEDERAL INCOME TAXATION 63-69 (14th ed. 2006); PAUL R.
McDANIEL ET AL., FEDERAL INCOME TAXATION 83-86 (6th ed. 2008); RICHARD
SCHMALBECK & LAWRENCE ZELENAK, FEDERAL INCOME TAXATION 121-27 (2d ed.
2007). For an analysis of one possible exception to this-income from interest free
loans-see infra notes 73-77.

10. Benaglia, 36 B.T.A. 838.
11. Gotcher, 401 F.2d 118.
12. Notice 99-3, 1999-1 C.B. 271 (TANF payments are not gross income);

Rev. Rul. 71-425, 1971-2 C.B. 76 (state welfare payments are not gross income). See
infra note 50 and accompanying text.

13. See infra note 82 and accompanying text.
14. See infra notes 48, 50, 90-94 and accompanying text.
15. Professors Zelenak and McMahon come close to articulating such a

theory when they propose that the analysis of what is income should "start with the
observation that basically what the income tax is about is the inclusion of the receipt
of cash in gross income, and then describe the ways in which section 61 extends
beyond cash receipts." Zelenak & McMahon, supra note 5, at 1304 (footnotes
omitted).

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We believe that neither lawlessness nor incompetence explains the
apparent inconsistency between the breadth of the Glenshaw Glass definition
and the narrower interpretation adopted by the courts and the IRS. We
subscribe, rather, to a third explanation: that the rulings of the courts and the
IRS reflect a widespread uncertainty and disagreement about what counts as
the kind of "accession to wealth" that should be taxed-that is, widespread
uncertainty and disagreement about what the language in the Internal
Revenue Code and Glenshaw Glass means.

Our thesis is that what explains the inconsistency and the uncertainty
and disagreement is that economics-at least Haig-Simons economics-is
not everything. Although the Glenshaw Glass definition of income is largely
consistent with the Haig-Simons definition,16 and thus with economics, it
fails to take into account other values that count for the people who are
subject to the tax and must buy into it, at least to some degree, for the tax to
be administrable.17

The IRS, the agency charged with administering the tax law,
sometimes understands this. While the IRS rarely acknowledges these
noneconomic values explicitly-perhaps for fear of unmooring tax from
economics and being left rudderless on a turbulent sea-it does give itself
some slack, taking into account competing, non-economic values, and
finding no income when Glenshaw Glass could be read to suggest otherwise.
And in those instances when the IRS misunderstands the competing values,
courts or Congress provide the slack, rebuffing the IRS without explicitly
recognizing the departure from strict economic values and thereby retaining
an anchor to prevent excessive drift.

The task before us in this Article, therefore, is to demonstrate that we
can make theoretical sense of what is actually treated as income by taking
into account both economic and noneconomic values.

We begin in Part I by exploring the difficulty of articulating a
definition of income that describes with precision the universe of accessions
which are actually subject to tax. We trace the expansion of the positive
definition of income, culminating in Glenshaw Glass, and then show the
difference between the apparent breadth of that definition and what the IRS
and sometimes Congress and the courts are actually willing to tax.

In Part II we consider possible explanations for this incongruity,
focusing on the idea of "aptness." 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.

16. See supra note 4 and accompanying text.
17. For discussion of the importance of congruence between the values of

those subject to laws and the values reflected in those laws, see, e.g., John H.
Robinson & Paul M. Darley, The Utility ofDesert, 91 Nw. U. REv. 453, 456 (1997).

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Armed with this concept, we return in Part III to the Glenshaw Glass
definition and ask whether it is apt. Since an apt definition should reflect the
values that define a field, we attempt to identify the important values in tax
and determine whether those values converge in the Glenshaw Glass
definition. Here we encounter a difficulty because outside of a few categories
of accessions, such as the receipt of cash salary, there is little society-wide
consensus about what ought to be subject to tax, reflecting, in turn, a lack of
consensus about what values ought to determine what is taxed. Hence, the
Glenshaw Glass definition proves not to be apt in the expected sense, for it
fails to reflect tax values directly. Nonetheless, this apparent defect in the
definition is its virtue. Its very breadth makes it possible for a variety of
values-including noneconomic values-to compete. And the IRS, with its
vast authority to administer the tax law, is left free to explore what values are
relevant, as well as their relative importance, on a case-by-case basis. In the
absence of legislative action, the IRS substitutes its view for the non-existent
consensus and then awaits the judicial, congressional, or popular response.
The IRS serves as the taste tester for society's views."

Accordingly, we conclude that the Glenshaw Glass definition of
income is apt after all, but in a highly unusual way. Instead of reflecting by
its own terms tax law's defining values, it gives the IRS the flexibility to
navigate the shoals of 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 in taxation.
The candidates for these values, as we will show, include economic values,
but also include a variety of noneconomic values. And if the IRS (with
occasional assistance from the courts and Congress) does its job well-if its
ongoing determination of what is income meets with general political and
social approval-then Glenshaw Glass turns out to be apt, after all.

I. DEFINING INCOME THAT IS TAXED

In this Part we explore the dramatic expansion of the definition of
income in 1955's Glenshaw Glass decision, in contrast to the narrow
approach taken by the Court in Eisner v. Macomber over 30 years earlier.
But in the more than half century since Glenshaw Glass, the IRS has treated
many accessions to wealth, clearly realized and under the taxpayer's
dominion, as nontaxable. We describe this contraction of the Glenshaw
Glass definition to show that the definition of income as administered by the
IRS is neither as broad nor as straightforward as Glenshaw Glass appeared to
promise.

18. Of course, if the IRS gets it wrong, it is subject to correction by the
courts or the legislature.

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A. The Definition Expands

That the Glenshaw Glass definition of income seems so broad is not
surprising. Its apparent breadth likely reflects its source (a Supreme Court
opinion interpreting a vacuously worded text), its place in the history of the
income tax (after the income tax evolved from a class tax to a mass tax
during World War II), and perhaps even the scholarly acceptance of what is
now commonly referred to as the Haig-Simons definition of income
following the publication of Henry Simons' book in 1938.19

The Glenshaw Glass definition stands in marked contrast to the
much narrower definition the Court had announced in Eisner v. Macomber.20

In Macomber the Court had to decide whether a pro-rata stock dividend was
income. In holding that it was not, the Court defined income as "the gain
derived from capital, from labor, or from both combined," and emphasized
that the gain be "derived," or severed, from the property.2' By requiring
severance the Court gave birth to the realization requirement, which remains
part of the definition of income today.22

Despite the longevity of the realization requirement, the first part of
the Macomber definition, which limited income to the "product of labor or
capital or both combined" was destined for a different fate. More than three
decades after it decided Macomber the Court in Glenshaw Glass had to
decide whether punitive damages were income. Unlike compensatory
damages, punitive damages bear no relationship to the labor or capital of the
plaintiff but are paid solely to punish the defendant. Hence, as to the
plaintiff, they are a windfall. Because windfalls do not proceed from the
recipient's labor or capital or both combined, the punitive damages received
by Glenshaw Glass could not be income under the Macomber definition, and
the lower courts had consistently so held.23 To treat them as income the
Court needed to redefine the term.

The Court's decision in Glenshaw Glass must have come as quite a
surprise to the lower federal courts, whose opinions betrayed little doubt that
they were reaching the correct result in concluding that windfalls generally,

19. See supra text accompanying note 4.
20. Eisner v. Macomber, 252 U.S. 189 (1920).
21. Id. at 193. (citing earlier cases for its definition).
22. See infra Part III.B.
23. The taxpayer had won not only in the Third Circuit, which decided both

Glenshaw Glass and William Goldman Theatres together, Comm'r v. Glenshaw
Glass Co., 211 F.2d 928 (3d Cir. 1954), rev'd, 348 U.S. 426, (1955) but in the Tax
Court as well. See Glenshaw Glass Co. v. Comm'r, 18 T.C. 860 (1952), aff'd, 211
F.2d 928; William Goldman Theatres, Inc. v. Comm'r, 19 T.C. 637 (1953).

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and punitive damages specifically, were not income.24 The Third Circuit
reasoned that the Court had "never expressly departed from the definition of
income of Eisner v. Macomber," had "reiterated it fairly recently" and had
even "expressly declined to overrule" it.25 Indeed, the Third Circuit seemed
shocked that the "government in substance asserts that any money or
property coming into the hands of any person is taxable as income unless
specifically exempted."2 Despite the court's apparent attraction to the
symmetry that taxing punitive damages would produce (it would remove the
difference in the taxation of compensatory and punitive damages), it was
unwilling to depart from existing case law. It concluded that "if such a result
is to be achieved after nearly two decades it should be effected by the
Supreme Court and not by this tribunal."27

In holding for the taxpayer the Third Circuit did as the Court had
done in Macomber and supported its reading of existing case law by
considering the ordinary meaning of the term. As it explained,

We concede that no definition is too helpful, and that the
decisions relating to income tax law contain charts rather
than definitions . . . . But it should be borne in mind that in
Eisner v. Macomber, albeit where severability was the
primary issue, the Supreme Court said, that "only a clear
definition of the term 'income,' as used in common speech"
was required. We do believe that a "windfall"-and the
payments at bar were "windfalls"-would not be regarded as
"income" within the terms of common speech. Certainly the
payments to the taxpayers cannot fairly be regarded as
products of capital or labor. We believe that the ordinary
man regards income as something which comes to him from
what he has done, not from something which is done to him.
This is perhaps an over-simplification but we are of the
opinion that the ordinary man using terms of common
speech would not regard punitive damages as "income.

24. Professor Dodge, who has thoroughly studied the Court's Glenshaw
Glass decision, notes that the Court's opinion in Glenshaw Glass does not seem to
have been perceived as seismic at the time. DODGE ET AL., supra note 9, at 31-32.

25. Glenshaw Glass, 211 F.2d at 933.
26. Id. at 932.
27. Id. at 934.
28. Id. at 933.

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The Third Circuit thus followed Macomber not only by applying its
definition of income but also by hewing to its methodology: reference to
common understanding of what should be taxed.29

The Tax Court, which had also held for the taxpayer in both
Glenshaw Glass and its companion case, had seemed even more certain of its
conclusion. 30 Nevertheless, not only did the Court reverse the judgments of
the Tax Court and the Third Circuit, but it adopted a definition of income
that went far beyond that which courts had applied in the three decades
following Macomber.

With the benefit of hindsight, it is not surprising that the Court in
Glenshaw Glass defined income as it did. The Glenshaw Glass definition
preserves the realization requirement but is broad enough to encompass
windfall gains of the sort at issue in that case. That it may have been
excessively broad might not have concerned the Court because the statutory
formulation it was construing was also very broad. Indeed, in quoting the
statutory formulation the Court emphasized that income included "gains or
profits and income from any source whatever" by italicizing that specific
language, 31 and explaining that "the Court has given a liberal construction to
this broad phraseology in recognition of the intention of Congress to tax all
gains except those specifically exempted." 3 2

That the Glenshaw Glass Court took its cue from the breadth of the
statutory definition of income seems reasonable in light of the evolution of
the tax law from the time of Macomber in 1920 to Glenshaw Glass in 1955.
At the time of Macomber, the constitutional income tax was barely seven
years old and tax laws were contained in yearly enactments. Although there
was a brief period of growth in the income tax occasioned by the need to
fund World War I, the income tax that the Macomber Court faced was still a
class tax of relatively narrow application." By the time the Court decided
Glenshaw Glass in 1955, Congress had not only enacted the 1939 Code, but
in the time during and after World War II the income tax had grown so much
that a second codification project was necessary, culminating in the 1954

29. The Macomber definition of income came from dictionaries. Eisner v.
Macomber, 252 U.S. 189, 207 (1920).

30. See Glenshaw Glass Co. v. Comm'r, 18 T.C. 860, 868 (1952), affd, 211
F.2d 928 (3d Cir 1954), rev'd, 348 U.S. 426 (1955); see also William Goldman
Theatres, Inc. v. Comm'r, 19 T.C. 637 (1953) (with identical case history).

31. Comm'r v. Glenshaw Glass Co., supra note 1, at 429 (1955).
32. Id. at 430.
33. See Carolyn C. Jones, Class Tax to Mass Tax: The Role of Propaganda

in the Expansion of the Income Tax During World War II, 37 BUFF. L. REv. 685
(1988) (describing the growth in the income tax from a levy that affected only those
at the very top of the income distribution at its inception to a levy of general
application as a result of the need to fund World War II).

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Code, the structure and organization of which persist to this day.34 During the
1940s marginal tax rates skyrocketed, wage withholding was instituted, and
the income tax grew from a levy on the few (a class tax) to a substantial
exaction on the many (a mass tax). In that context, expanding the definition
of income to correspond with the expanding importance of income taxation
was sensible. There was only one dissent from the Court's decision: Justice

35
Douglas, dissenting without opinion.

The definition adopted by the Court in Glenshaw Glass would also
have seemed reasonable to tax scholars. Tax theory derives from public
finance economics, so a definition of income grounded in economics would
seem natural. By the early 1950s, when Glenshaw Glass was making its way
through the courts, the Haig-Simons definition of income had become the
centerpiece of the scholarly lexicon, following Henry Simons's 1938
publication of the famous book in which he refined Robert Haig's definition
of income.36 Simons wrote that "[p]ersonal income may be defined as the
algebraic sum of (1) the market value of rights exercised in consumption and
(2) the change in the value of the store of property rights between the
beginning and end of the period in question."37 This is an exceedingly broad
definition, bringing within its grasp all accessions, whether consumed or
saved. Its breadth allows it to serve the goal of raising maximum revenue
while also being maximally equitable and efficient and therefore serving two
important tax policy objectives. If all accessions are subject to tax then
taxpayers who are similarly situated economically will be taxed similarly and
the level of taxation can be adjusted to correspond to relative positions. This
serves both horizontal and vertical equity. In addition, because such a
definition does not distinguish between sources of income, it does not
privilege income from certain activities, which is efficient.

34. Although the current Code is the Internal Revenue Code of 1986, the
change in appellation marks the importance of the Tax Reform Act of 1986 rather
than the creation of a new codification.

35. See, BERNARD WOLFMAN ET. AL., DISSENT WITHOUT OPINION: THE
BEHAVIOR OF JUSTICE WILLIAM 0. DOUGLAS IN FEDERAL TAX CASES, 41-42 (1975);
DODGE ET AL., supra note 9, at 31 n.43.

36. SIMONS, supra note 4. Simons's work is generally acknowledged to be
refinement and elaboration of "the basic concept advanced in Robert M Haig, The
Concept of Income - Economic and Legal Aspects, in THE FEDERAL INCOME TAX
(Robert M. Haig ed. 1921)" and previously advanced by the German theorist Georg
von Schanz. Dodge, Glenshaw Glass Story, supra note 1, at 36 n.65. The Haig-
Simons definition was discussed in a number of scholarly pieces published in the
early 1950s, including Comment, Taxation of Found Property and Other Windfalls,
20 U. CHI. L. REV. 748, 753 n.23 (1953); Surrey & Warren, supra note 2, at 770.

37. SIMONS, supra note 4, at 50.

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Defining Income

Even Simons understood that his definition could not describe a
workable tax base. One significant limitation on it comes from the absence
of a realization requirement. Absent a realization requirement a taxpayer's
property would have to be valued periodically and the difference between the
beginning and ending values would have to be computed in order to
determine the amount of a taxpayer's income. Even if the valuation were
easy, as in the case of public traded securities, treating a positive difference
as income would create persistent liquidity problems in the absence of cash.
The realization requirement solves these problems.

The Glenshaw Glass definition, which is the Haig-Simons definition
limited by realization, is faithful to all three major tax policy objectives:
equity, efficiency, and administrability. 40 It is neither too broad, as Haig-
Simons alone would be, nor too narrow, as the Macomber definition was. By
retaining realization while moving to embrace Haig-Simons, the Court may
have gotten it just right. This probably did not happen by accident.

Unlike the Macomber Court, whose 1920 opinion predated even the
publication of Haig's work, the Glenshaw Glass Court had reason to know of
the Haig-Simons definition and of its importance as the theoretical
underpinning of the modem income tax. Although the Court did not cite
Simons or refer to the Haig-Simons definition in its opinion, there is strong

38. Id at 103-07.
39. See Helvering v. Horst, 311 U.S. 112, 116 (1940); Cottage Say. Ass'n v.

Comm'r, 499 U.S. 554, 565 (1991); GRAETZ & SCHENK, supra note 9, at 154;
MCDANIEL ET AL., supra note 9, at 70-71; Fred B. Brown, Proposal to Reform the
Like Kind and Involuntary Conversion Rule in Light ofFundamental Tax Policies: A
Simpler, More Rational, and More Unified Approach, 67 MO. L. REV. 705, 713
(2002); Edward A. Zelinsky, For Realization: Income Taxation, Sectoral
Accretionism, and the Virtue of Attainable Virtues, 19 CARDOZO L. REV. 861, 863,
961 (1997); Marjorie E. Komhauser, The Constitutional Meaning of Income and the
Income Taxation of Gifts, 25 CONN. L. REv. 1, 20 (1992); but see David M. Schizer,
Realization as Subsidy, 73 N.Y.U. L. Rev. 1549, 1551 (1998) (suggesting that the
realization requirement provides an important subsidy to savings); Deborah H.
Schenk, A Positive Account of the Realization Rule, 57 TAX L. REv. 355, 355-56
(2004) (noting "[t]here is a strong consensus in the literature that a normative income
tax would tax changes in wealth as they accrue rather than as realized, but a
realization requirement is nevertheless necessary due to the liquidity and valuation
constraints of accrual taxation" but that the realization requirement is necessary not
because of liquidity and valuation concerns, but because it is politically impossible
to repeal since it aligns with a taxpayer belief that "paper gains" should not be
taxed); see generally Marjorie E. Komhauser, The Story of Macomber: The
Continuing Legacy ofRealization, in TAX STORIES 93, 115 (Paul L. Caron ed., 2d ed.
2009).

40. See supra note 4. Even Professor Dodge admits the closeness of the two
definitions, as do other scholars. See, e.g., BANKMAN ET AL., FEDERAL INCOME TAX:

EXAMPLES AND EXPLANATIONS 40 (4th ed. 2005).

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reason to believe that Simons's work and the central place of the Haig-
Simons definition in economic theory were known to it. Significantly, the
Government's brief in Glenshaw Glass cited two pieces of scholarship that
make explicit reference to Simons's work and to the Haig-Simons definition
of income.41 One is a student note in the Chicago Law Review that begins by
quoting Justice Douglas, proclaiming in dissent that "Eisner v. Macomber
dies a slow death," and goes on to advocate a broad definition of income,
citing Simons's work.4 2 The other is more significant. It is the report of the
ALI Income Tax Project, for which Stanley Surrey and William Warren
served as reporters and which was published in an issue of the Harvard Law
Review in 1953.43 Given the pedigree of the contributors to that project," not
to mention the scholarly stature of the reporters,45 it is inconceivable that the
Justices and law clerks who read the Government's brief would not have
read the documents the Government was citing in support of its position.46

The ALI Report criticized the Macomber definition, classifying it as
a "generalization rather than a definition," and then looked to the
economists' definitions-specifically, to Haig-Simons-for assistance. We
think that the similarity between the Glenshaw Glass definition and the
Haig-Simons formulation is not coincidental and that similarity accounts for
the continuing appeal of Glenshaw Glass. By being rooted in Haig-Simons
the Glenshaw Glass definition ensures promotion of the important tax policy
objectives of equity and efficiency, while the constraint of realization makes

41. Brief for the Petitioner at v, 14, 23, 25., Comm'r v. Glenshaw Glass
Co., 348 U.S. 426, No. 199 (Dec, 27, 1954).

42. Comment, supra note 36, at 753.
43. Surrey & Warren, supra note 2.
44. The project was under the direction of the Tax Policy Committee of the

ALI; that committee was composed of seven members, including two renowned tax
scholars: Dean Erwin Griswold of the Harvard Law School, and Randolph E. Paul of
Washington, D.C. See id at 766.

45. Stanley Surrey, the Chief Reporter, was then a Professor at the Harvard
Law School and William Warren, the Associate Reporter, was then Acting Dean and
Professor of Law at Columbia Law School. Id. at 761.

46. Professor Dodge acknowledges that "'accession to wealth' sounds very
much like 'increase in net wealth,' and to that extent, the statement from Glenshaw-
Goldman is congruent with the Haig-Simons Concept of income." Dodge, Glenshaw
Glass Story, supra note 1, at 36. Nevertheless he asserts that "there is no evidence
from the record that the Court and counsel were particularly aware of the Haig-
Simons concept." Id. The Government's citation of scholarly pieces that refer to the
concept in its brief, and in the case of the ALI Project, discuss in detail its
relationship to a legal definition of income, lead us to a different conclusion. Given
that both lower courts in Glenshaw Glass held for the taxpayer, it stands to reason
that the Court was aware of the scholarship that supported the Government's
position and that was cited to it, including the scholarship that advocated a broad
concept of income consistent with emerging economic theory.

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it administrable. In developing the Glenshaw Glass definition the Court
played Goldilocks, trying the narrow definition (Macomber), almost
certainly considering the broader one (Haig-Simons), but developing a
formulation that retained the best of both. The problem is that the definition
cannot apply as written.

B. The Definition Contracts

As the Third Circuit had observed in its opinion in Glenshaw Glass,
the breadth of the Government's position, which prevailed in the Supreme
Court, was such that any receipt could be income unless excluded. 47 Because
Congress did not act to increase the specific exclusions in the Code after
Glenshaw Glass, it was possible for an amount that would not have been
treated as income before Glenshaw Glass and that would not generally be
thought to constitute the type of receipt that should be taxed to be treated as
income and to remain in the tax base because no exclusion would rescue it
from that fate. Child support provides an example of such a receipt.

A check for support wrung by a court from a recalcitrant father is an
accession to the child's, or her mother's, wealth, and is clearly realized and
within their dominion. Hence, although it would not have been income under
the Macomber definition because it does not proceed from either the
mother's or child's labor or capital, it fits the Glenshaw Glass definition.48

Nothing in the statute excludes it. If it were true that the statutory pattern is
that gross income is income, as defined by Glenshaw Glass, unless an
exclusion applies, support would be income.

Yet, support other than alimony is not taxed.49 Millions of dollars
constituting support doubtless change hands every day and the IRS has never

47. Comm'r v. Glenshaw Glass Co., 211 F.2d 928, 932 (3d Cir. 1954),
rev'd, 348 U.S. 426 (1955).

48. In Gould v. Gould, 245 U.S. 151 (1917), the Court held that alimony
was neither deductible to the ex-husband paying it nor includible in the income of
the ex-wife receiving it. Unlike the definition contained in the statute at the time of
Glenshaw Glass, the definition of income at issue in Gould was closer to the
Macomber definition in listing the kinds of items that were income. With respect to
alimony § 71 now provides for a specific inclusion, but the very existence of the
specific inclusion when the payor gets a deduction proves that the general rule would
be exclusion.

49. Section 71(c) provides that § 71(a), which includes alimony in the
recipient's income, will not apply to child support, but that does not exclude child
support from income-it only provides that it will not be included as alimony.
Nothing in § 71(c) precludes the inclusion of child support in income under § 61 in
the absence of a specific exclusion. While some child and other support, such as
spousal support, could be excluded from income as a gift, that rationale would not
apply to support which is provided as a result of a legal obligation, not detached and

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asserted that such amounts are income. Apparently, the IRS does not
interpret income as broadly as Glenshaw Glass seems to permit.

The gap between the apparent breadth of the Glenshaw Glass
definition of income and what is taxed grows if we consider other items.
Consider government transfer payments, such as those provided by the
Temporary Aid to Needy Families (TANF) program, medical services,
including hospitalization, provided by Medicaid and Medicare, and public
education. Such benefits, particularly those for medical care, could reach
substantial amounts and, like support, appear to come within the Glenshaw
Glass definition of income. In this case, as in the case of support, the statute
is silent, but unlike the case of support the IRS has provided some guidance
by developing a so-called general welfare exclusion pursuant to which
payments from the government that meet certain criteria are not treated as
income.50 Although the exclusion is sensible, it is inconsistent with the
apparent breadth of Glenshaw Glass.

The IRS's failure to tax child support and its administrative
exclusion of government benefits complicate the articulation of a definition
of income that reflects what is actually subject to tax. In light of the
administratively defined general welfare exclusion such a definition would
go something like this: "Gross income is all accessions to wealth, clearly
realized, over which the taxpayer has dominion unless excluded by statute, or
by the IRS's never having attempted to tax them, or by the IRS's having
announced an administratively created exclusion pursuant to no specific
authority whatsoever." Such a definition might not merit being labeled
lawless but it does reveal the existence of an apparent incongruence 1

disinterested generosity, which is required for classification as a gift. Duberstein v.
Comm'r, 363 U.S. 278 (1960). Indeed, if support were income, there would be no
need for § 71(a).

50. For a comprehensive history and description of the general welfare
exclusion, see Robert W. Wood & Richard C. Morris, The General Welfare
Exception to Gross Income, 109 TAX NOTES 203 (2005); Robert W. Wood, Updating
General Welfare Exception Authorities, 123 TAx NOTES 1443 (2009). For a recent
application see Notice 2011-14, 2011-14 I.R.B. 544.

51. In THE MORALITY OF LAW Professor Lon Fuller discusses "the most
complex of all the desiderata that make up the internal morality of law: congruence
between official action and law." LON FULLER, THE MORALITY OF LAW 81 (rev. ed.
1969). Insofar as the actual practices of the IRS reflect an interpretation of the term
"income" that seems inconsistent with § 61 as interpreted by Glenshaw Glass, its
administration of income tax law appears to lack this "congruence." As Professor
Fuller explains:

The most subtle element in the task of maintaining congruence
between law and official action lies, of course, in the problem of
interpretation. Legality requires that judges and other officials
apply statutory law, not according to their fancy or with crabbed

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Defining Income

between what the positive law (statute and regulations) says and what the
IRS actually attempts to tax. That apparent incongruence is an unexplained
contraction of the positive law.

The apparent incongruence between the positive law definition of
income and what the IRS actually attempts to tax, which we refer to as the
administered definition of income, is not limited to accessions that take place
in non-commercial transactions. The wheels of commerce are often oiled by
the transfer of valuable property or services and such transfers undoubtedly
enhance the wealth of those who receive, realize, and have dominion over
them. Lawyers take clients to lunch or dinner and invite them to sporting
events every day. Some businesses provide unsolicited samples of their
wares at no charge in hopes of inducing additional purchases thereof. Still
others court potential investors or candidates for employment by covering
the cost of travel designed to induce the investor or candidate to invest or
accept an offer of employment. All such transactions would appear to fit
within the Glenshaw Glass definition of income. Yet, the IRS does not
currently treat them as generating income. In these cases the existence of the
apparent incongruence is especially troublesome because of the near absence
of any administrative pronouncement.52 The only authority that supports the
proposition that such realized accessions are not income is one Fifth Circuit
opinion which the IRS only partially lost and in which it has not announced

- 53its acquiescense.
In United States v. Gotcher,54 the taxpayer, who had an interest in a

VW dealership, and his wife went on a trip to Germany arranged and paid for
by VW. It was a group trip, in which 60 of the participants were VW dealers

literalness, but in accordance with principles of interpretation that
are appropriate to their position in the whole legal order.

Id. at 83. However, as we will develop in Part III, in interpreting the word
"accession" in Glenshaw Glass more narrowly than its apparent breadth would seem
to allow, the IRS is neither acting according to its fancy nor with crabbed literalness.
Rather, it is choosing among competing values, which, in the absence of a wide
consensus, is what it should do.

52. Rev. Proc. 2000-30, 2000-2 C.B. 13 provides that de minimis in-kind
payments (the proverbial toaster offered by a bank to new depositors) will not be
treated as original issue discount, or income, but such pronouncements are rare in
light of the multiplicity of situations that raise similar issues.

53. Gotcher v. United States, 401 F.2d 118 (5th Cir. 1968). By
acquiescence we do not necessarily mean formal acquiescence, but the IRS can
indicate its agreement with a decision that it lost by other means. It hasn't chosen to
do that in this case.

54. Id.

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and their wives, and the other participants were VW employees." As the
Court of Appeals explained:

The trip was made in 1959 when VW was attempting to
expand its local dealerships in the United States. The "Buy
American" campaign and the fact that the VW people felt
they had a "very ugly product" prompted them to offer these
tours of Germany to prospective dealers. . . . It was believed
that once the dealer saw the manufacturing facilities and the
stability of the "new Germany" he would be convinced that
VW was for him.5 6

The Government took the position that the cost of the trip was
income to Mr. and Mrs. Gotcher. That position followed from a
straightforward application of positive law, based on section 61 and the
Glenshaw Glass definition. Nevertheless, the District Court agreed with the
taxpayers, holding that the trip was neither compensation for services
rendered nor a prize or reward for past services, thus distinguishing other
cases but arguably disregarding the expansive language of section 61 and
Glenshaw Glass, neither of which confine income to compensation or prizes.
The Government appealed, but the Fifth Circuit also agreed with the
taxpayers, at least with respect to Mr. Gotcher's trip. Its rationale, like that of
the District Court, was that taxation to the recipient should be determined by
the motive of the payor. It found an analogy in the judicially created
"convenience of the employer" doctrine because the trip served a purpose of
the payor and was not intended to compensate or reward the payee, and
concluded that there was no income to Mr. Gotcher.5 7 Although the District
Court had found that Mrs. Gotcher's attendance had also furthered VW's
purpose because of the communal nature of investment in a significant
business venture such as a VW dealership, the Appellate Court panel, over
the objection of the Chief Judge, reversed, finding that for Mrs. Gotcher the
trip was a vacation.

Gotcher may reach the correct result with respect to Mr. Gotcher for
reasons we develop in Part IV, but it seems puzzling in light of the language
of the positive law. The only possibly applicable exclusion, section 119
(which codified the judicially-created convenience of the employer doctrine)
was clearly inapplicable because VW was not Mr. Gotcher's employer.
Indeed, the very codification of that doctrine in a statutory provision by its
terms applicable only to employees (and even then only to meals and lodging

55. Gotcher v. United States, 259 F. Supp. 340, 343 (E.D. Tex. 1966); aff'd
in part and rev'd in part, 401 F.2d 118 (5th Cir. 1968).

56. Gotcher, 401 F.2d at 121.
57. Beraglia v. Comm'r, 36 B.T.A. 838 (1937).

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provided on the employer's business premises) should have allowed the IRS
to prevail. That it didn't was certainly good news for Mr. Gotcher, but the
case nevertheless had the potential for creating substantial uncertainty.

The uncertainty would have come from the IRS's having taken the
position that the trip was income at all, not losing completely, and not
announcing its agreement with the Fifth Circuit majority. Taxpayers might
have drawn comfort from a tightly reasoned opinion, but not only does the
Gotcher court apply a judicial doctrine that has been codified to a situation
clearly not covered by the codification, but the doctrine itself does not
withstand rigorous analysis. The court's rationale, which focuses on the
motives of the payor, proves too much. To say that an amount is paid
because it furthers an important objective of the payor is to describe salary,
which is clearly income. The desire to induce specific behavior on the part of
the payee does not distinguish from salary the payment of amounts such as
VW's payment of Mr. Gotcher's trip to Germany, not only because salary is
also paid to induce particular behavior (work) but also because if VW
thought that it could get the potential dealers to go to Germany without the
inducement of covered expenses, it would have done so, just as an employer
who can get desired services without the payment of compensation, or with
the payment of less compensation, would do so. In both cases the payor is
paying because paying serves an important interest of the payor.

The Fifth Circuit's decision in Gotcher also provides scant comfort
to taxpayers because it is internally inconsistent. Surely VW's motivation for
paying Mr. Gotcher's expenses was the same as its motivation for paying
Mrs. Gotcher's expenses: it wanted to induce the investment in the
dealership. The district court recognized this and found no income with
respect to either taxpayer. Two of the three judges on the Fifth Circuit panel,
however, distinguished between Mr. and Mrs. Gotcher; Mrs. Gotcher's
purpose was personal but Mr. Gotcher's was business. Putting aside the
implicit sexism in this view, it underscores the internal inconsistency of the
court's stated rationale. If it is the payor's purpose that is determinative, then
the payee's purpose ought not matter.

What the internal inconsistencies of the Gotcher opinion reveal is the
tension between the Glenshaw Glass definition and the apparent legal
structure of which it is a part (in which all realized accessions are income
unless specifically excluded), and the difficulties of administering a tax
system consistent with that structure. The tension is evident in the IRS's
litigation of Gotcher even though in 1963 it had issued a ruling in which it
reached a conclusion apparently at odds with its litigating position in
Gotcher. The ruling held that amounts paid by a potential employer in one
state to reimburse individuals who incurred expenses in travelling from
another state to undergo interviews for potential employment were neither

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wages nor income." The conclusion that the amounts are not wages is
obvious, but the conclusion that they are not income is not. Perhaps the IRS
didn't think there was an element of enjoyment (personal consumption) in
the situation in the ruling but suspected the existence of such an element in
Gotcher, but we do not know because the ruling limits itself to describing the
situation and providing a conclusion. No rationale is given. To us, the ruling
and the litigation of Gotcher within the same time frame reveal an agency
trying to find its way.59 The IRS apparently resolved the tension by deciding
to make the Gotcher argument only in very public situations involving
relatively large amounts.60

After Gotcher the administered definition of income would seem to
be something like: "Gross income is all accessions to wealth, clearly
realized, over which the taxpayer has dominion, unless excluded by statute,
or by the IRS's not ever having attempted to tax it, or by the IRS's having
announced an administratively created exclusion pursuant to no specific
authority whatsoever or by the IRS's having taken the position that it is
income but having a court, albeit not the Supreme Court, disagree in part, on
grounds that cannot withstand rigorous analysis, which therefore allows the
IRS to take a contrary position in a case in which the amounts are larger."

C The Definition Fragments

Another way of attacking the Gotcher problem of non-taxable
consumption is to deny a business expense deduction to the payor in any
situation that contains a significant element of consumption.61 This technique
assumes that the statutory limitation will restrict the deduction to the cases
that have the smallest possibility of representing consumption to the recipient
and that, in the absence of a deduction, payors would only incur the expenses
when the benefits to them exceeded any consumption element to the payee,
thus creating an equilibrium and relative ease of administration provided by
the visibility of the deduction.

In the employment context, Congress attempted to provide certainty
on the definition of income by codifying specific rules after the IRS

58. Rev. Rul. 63-77, 1963-1 C.B. 177.
59. The year at issue in Gotcher was 1960. The District Court decided

Gotcher in 1966, and the Court of Appeals in 1968.
60. There are no cases after Gotcher, and the IRS has raised the income

issue only in situations that draw significant public attention, as will be discussed
later. The absence of additional cases is surely not due to the absence of situations
that present Gotcher issues.

61. Section 274 provides the clearest example of this approach. For
example, § 274 limits the deduction for many meals or entertainment that would
otherwise be deductible business expenses to 50 percent of the amount spent. I.R.C.
§ 274(n).

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Defining Income

suggested that fringe benefits common in many workplaces were actually
income, prompting howls of protest from business and industry groups.62 A
similarly vitriolic public reaction led the IRS to abandon the possibility of
taking the position that frequent flyer miles accumulated while on business
travel paid for by an employer (and properly excluded from income under
section 132 as a working condition fringe) produced income to employees
when used to obtain free personal travel.

The difficulty of reconciling the positive law definition of income-
the statutory structure in which the apparently broad Glenshaw Glass
definition is followed by specific exclusions-with the need to administer
the tax law, is nicely illustrated by the quandary into which an elementary
school principal put the IRS in the late 1960s. In 1967 and 1968, the
elementary school principal, Mr. Haverly, received unsolicited textbooks
from publishers, as all of us in academia still do. 4 In 1968 Mr. Haverly not
only gave the books to his school's library but also took a charitable
contribution deduction therefor. Apparently flummoxed by this action the
IRS in 1970 issued a revenue ruling in which it took the position that
unsolicited books received by a book reviewer were income to the reviewer,
reasoning that they were an accession to the reviewer's wealth not excluded
by any statutory provision.6 ' Later that same year, it superseded that ruling
with another one which held that receiving such unsolicited books and then
donating them to charity resulted in income.66 The IRS challenged Mr.
Haverly's deduction, but in 1974 the district court handed the taxpayer a
complete victory.

The IRS was clearly bothered by the apparent double benefit of
receiving property free of tax and then being allowed a deduction for giving

62. Testimony before the Senate Finance Committee by Treasury Assistant
Secretary for Tax Policy John E. Chapoton in 1983 succinctly summarizes the IRS
action and public and Congressional reaction. Treasury, Joint Tax Committee
Discuss Taxation of Fringe Benefits, 19 TAX NOTES 1191 (1983). In 1984 Congress
enacted § 132. See Kenneth J. Kies, Analysis of the New Rules on the Taxation of
Fringe Benefits, 24 TAx NOTES 981 (1984).

63. Announcement 2002-18, 2002-1 C.B. 621; IRS Tech. Adv. Mem
9547001 (July 11, 1995), see also IRS Wrestles with Frequent Flyer Miles; Clinton
and Hill Fight over Budget, 69 TAX NOTES 1157 (1995); Sheryl Stratton & Ryan J.
Donmoyer, Don't Ask, Don't Tell: The IRS's Frequent Flier Policy, 69 TAX NOTES
1159 (1995).

64. Haverly v. United States, 513 F.2d 224 (7th Cir. 1975), cert. denied,
423 U.S. 912 (1975).

65. Rev. Rul. 70-330, 1970-1 C.B. 14.
66. Rev. Rul. 70-498, 1970-2 C.B. 6. By superseding the previously issued

ruling the IRS seemed fairly clearly to be saying that it would not treat mere receipt
of the books as income. The books would be income only if received and donated.

67. Haverly v. United States, 374 F. Supp. 1041 (N.D. Ill. 1974), rev'd, 513
F.2d 224 (7th Cir. 1975).

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it away. But the amount of the charitable contribution deduction is
determined by the value of the property donated and does not depend on that
value having been taxed. 8 Because there was no question of the taxpayer's
entitlement to the deduction, the IRS had to litigate the issue from the
income side. As to the income issue, the district court was unable to
distinguish the receipt of books which were later donated to charity by a
taxpayer who took a charitable contribution deduction therefor from the
receipt of books donated to charity by a taxpayer who took no such
deduction, or from the many situations in which taxpayers receive
unsolicited samples which they use, exercising dominion in ways more
private than the taking of a tax deduction but exercising dominion
nonetheless.69 It reasoned that all such situations were the same with respect
to the exercise of dominion and that "a distinction based on the value of the
sample, or on the particular way in which a recipient converts it to his or her
own use, is not acceptable as a matter of law based on any applicable tax
provision, precedent or logic."70

The Second Circuit reversed. Although that court acknowledged the
unassailable logic of the District Court's analysis, it concluded, in
archetypical common law fashion, that only Mr. Harverly's case was before
it, and Mr. Haverly, having realized an accession to wealth over which he
exercised dominion by making the donation and taking the ensuing
deduction, had income. Any resulting lack of symmetry was acceptable
because

[t]he Internal Revenue Service has apparently made an
administrative decision to be concerned with the taxation of
unsolicited samples only when failure to tax those samples
would provide taxpayers with double tax benefits. It is not
for the courts to quarrel with an agency's rational allocation
of its administrative resources.n

The opinions in Haverly illustrate the difficulty of defining income
in a coherent, administrable way not only by their inability to do so but
because the existence of the case itself confirms the inadequacy bordering on
irrelevance of the "intent of the payor" or "convenience of the employer"
talismans. There can be no doubt that the publisher of the books sent to Mr.

68. I.R.C. § 170.
69. Haverly, 374 F. Supp. at 1045.
70. Id.
71. Haverly, 513 F.2d at 227. The charitable contribution provisions clearly

allow a deduction for the fair market value of property, not its basis, so denial of the
deduction could not reasonably be pursued. Inclusion in income was the only way of
preventing a double benefit.

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Defining Income

Haverly wanted Mr. Haverly to adopt them in his school, which would lead
to substantial sales. Its motives were no more compensatory than those of
VW in paying for the Gotchers' trips to Germany. The existence of a
significant non-compensatory purpose by the payor sufficed to save Mr.
Gotcher from having income but failed to provide a similar fate for Mr.
Haverly (and Mrs. Gotcher).7 2

The post-Gotcher legacy renders any attempt at a definition of
administered income nearly incoherent. It would seem to go something like
this: "Gross income is all accessions to wealth, clearly realized, over which
the taxpayer has dominion unless excluded by statute, or by the IRS's not
ever having attempted to tax it, or by the IRS's having announced an
administratively created exclusion pursuant to no specific authority
whatsoever or by the IRS's having taken the position that it is income but
having a court, albeit not the Supreme Court, disagree in part, on grounds
that cannot withstand rigorous analysis, which therefore allows the IRS to
take a contrary position in a case in which the amounts are larger, or
adopting without explanation a position driven by administrative
convenience, of uncertain application beyond the specific facts provided, or
otherwise having indicated that it doesn't know whether it can or should tax
it but for the moment it won't."

To add to the uncertainty, the IRS can, and sometimes does, change
its position. Even though the IRS had never taken the position that imputed
income is income and had issued a revenue ruling stating that interest-free
loans did not result in income to the recipient as a result of the forgone
interest,73 it subsequently took the position that an interest-free loan from a
corporation to a shareholder resulted in the receipt of interest by the
shareholder.74 There followed nearly two decades of litigation in which the
courts stubbornly refused to agree, until one court finally adopted the IRS's
analysis in the gift tax context.7s The resulting split in the circuits landed the

72. As the District Court in Haverly pointed out, and as the Court of
Appeals seemed to acknowledge, the contribution of the items received is logically
distinct from their inclusion in income. The two events can be tied in the service of
administrative convenience, as the Court of Appeals acknowledged, but it is one
thing to say the receipt of the property is income which the IRS is going to choose
not to tax for reasons of administrability, and another to say that the receipt is just
not income at all.

73. Rev. Rul. 55-173, 1955-2 C.B. 23.
74. Dean v. Comm'r, 35 T.C. 1083 (1961), non-acq, 1973-2 C.B. 4. For

another example of the IRS's change in position on interest free loans see Favorable
Ruling on Interest-Free Loans is Revoked, 22 TAx NOTEs 285 (1984).

75. For a detailed explanation of the judicial and administrative events that
preceded the enactment of § 7872, see Staff of the Joint Comm. on Tax'n, General
Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984, JCS 41-

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gift tax issue before the Supreme Court, which agreed with the IRS.7 6 Chaos
then threatened to ensue because of the virtual impossibility of administering
such a conclusion uniformly.77 The IRS tried to calm the waters by issuing
guidance, and Congress stepped in by enacting section 7872, which treats as
income (or gift) the forgone interest in below market loans under some,
though not all, circumstances.

Despite such arguably happy endings, the difficulties persist.
Members of Oprah's studio audience in September 2004 were probably
delighted to hear that they would all receive Pontiac G6 automobiles, until
someone pointed out that the cars, whether solicited or not, were realized
accessions to wealth within the audience members' dominion and hence
income." Of course, in many ways, the audience members were like Mr.
Haverly or even Mr. Gotcher-beneficiaries of a seller's desire to hawk its
wares-but their situation was too public, the value of what they received-a
car-too clear, and they looked too much like prize winners. 9 They did not
ask for the cars, may not have wanted them, and it seems to us that they
received the cars only because it was in Pontiac's and Oprah's interest that
they do so,80 but that was not the only possible characterization. Perhaps the

84, at 524-26 (1984). For thoughtful commentary on § 7872, see Nancy J. Knauer,
Legal Fictions and Juristic Truths, 23 ST. THOMAS L. REV. 70, 113-14 (2010).

76. Dickman v. Comm'r, 456 U.S. 330 (1984).
77. The IRS was keenly aware of these problems and promptly after

winning Dickman issued published guidance to resolve them both retroactively and
prospectively and in the income and gift tax contexts. See IRS Explains Valuation of
Pre-1984 Interest-Free Demand Loans, 23 TAx NOTES 851 (1984).

78. Surprise! Oprah Gives Entire Audience New Cars, TODAY TELEVISION,
Sept. 13, 2004, http://today.msnbc.msn.com/id/5989964/ns/today-entertainment/.

79. Some news accounts underscored the prize aspects. See, e.g., Oprah
Car Winners Hit with Hefty Tax, CNNMONEY.COM, Sept. 22, 2004,
http://money.cnn.com/2004/09/22/news/newsmakers/oprahcartax/, but others
praised the marketing aspects, Tara Burghart, Oprah's Car Giveaway Hailed as
Marketing Coup, Pontiac Confident in its Multimillion Investment, CINCINNATI.COM,
Sept. 15, 2004, http://www.enquirer.com/editions/2004/09/15/bizbizlyoprha.html.

80. The move indeed added to Oprah's luster; not only did she repeat the
event, most recently with VW Beetles and trips to Australia, but the 2004 original
stunt was recently voted "TV's Greatest Surprise." Michael Langston, Oprah's Free
Car Giveaway Voted No.1 as "TV's Greatest Surprise," EXAMINER.COM, June 6,
2010, www.examiner.com/african-american-entertainment-in-nationalloprah-s-free-
car-giveaway-voted-no-i -as-tv-s-greatest-surprise. For descriptions of the Beetle and
Australia trip giveaways, on which Oprah agreed to pay the resulting tax liability for
her audience members, see Tax Consequences of Oprah's Latest Car Giveaway,
TAXPROF BLOG, Nov. 29, 2010, http://taxprof.typepad.com/taxprof blog/1910/11/
tax-consequences.html; Michael Cohn, Oprah to Pay Taxes for Audience's Australia
Trip, ACCOUNTING TODAY.COM, Sept. 24, 2010, http//www.accountingtoday.com/
debitscredits/Oprah-Pay-Taxes-Audience-Australia-Trip-55711-1 .html.

316 [Vol. 11:5



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cars were a prize for being in the audience that day, like the person who
receives money for being the millionth customer of an establishment. That
quickly became the prevailing public view.81

Like Oprah's audience, for years award show presenters and
nominees enjoyed the samples of luxury items contained in the "swag bags"
they received. Such items were provided for the same reasons VW paid for
the Gotchers' trip to Germany and the publishers of textbooks sent the books
to Mr. Haverly: sellers wanted to increase sales of their products by
generating publicity for them. Their motives were as non-compensatory as
those of VW or the textbook publishers; Oscar presenters do not need swag
bags to be induced to serve as presenters (many would almost certainly pay
for the opportunity if they could), and no behavior whatsoever was required
from the nominees who also received the bags. As with other free samples, it
would be nearly impossible to determine whether the taxpayer exercised
dominion by using the product. Nevertheless, as the value of the bags and the
resulting publicity surrounding them grew, the IRS felt compelled to act, and
in 2006 it took the position that the value of the swag in the bags was income
to the recipient.82 While that position clearly follows from the Glenshaw
Glass definition of income, and those of us who champion progressive
taxation might not quarrel with its effect, it is completely inconsistent with
the IRS's published position on unsolicited samples, as well as with the
intent of the payor and convenience of the employer talismans approved by
the courts in Gotcher and other cases. All of the arguments made by the
District Court in Haverly would apply to the swag bags, and in the absence

81. There were even some reports that Oprah had agreed to cover the
resulting tax liability, see, e.g., Zachariah Boren, Great Tax Lesson of Oprah's
"Free" Cars, SZONE.COM, Sept. 22, 2004, http://www.szone.us/f65/great-tax-lesson-
oprahs-free-cars-7034/ (referring to a CNN story reporting that Oprah would pay),
although most reports suggest that she did not do so in that instance. Chuck Sudo,
"And Then The IRS Asked For Their Cut, And The Screaming Stopped."
CHICAGOIST.COM, Nov. 22, 2010, http://chicagoist.com/2010/11/22/andthenthe_
irs asked for their cu.php (noting that Oprah's studio had said the recipients of the
cars would have to pay). In subsequent giveaways Oprah has agreed to cover the
resulting tax liability. See Cohn, supra note 80; see also Anosheh Azarmsa, Note,
Award Shows, Gifts, and Taxes: A Criticism of the Tax Treatment of Celebrity Gift
Bags, 28 LoY. L.A. ENT. L. REv. 27, 43 (2007/2008); Brian Hirsch, The Extreme
Home Renovation Giveaway: Constructive Justification for Tax-Free Home
Improvements on ABC's Extreme Makeover: Home Edition, 73 U. CINN. L. REV.
1665, 1669 (2005).

82. The IRS did this not by issuing a ruling or similar document, but by
having then-Commissioner Everson issue a press release. I.R. 2006-128, 2006 TNT
160-6 (Aug. 17, 2006); see Robert J. Wells, There are no Free Goody Bags, 112
TAX NOTES 621 (2006); Allen Kenney, IRS Reaches Out to Celebrities to Soothe
Anxiety Over Tax on Swag, 112 TAX NOTES 636 (2006); Azarmsa, supra note 81, at
43.

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of a deduction taken by the recipients, the distinction which the Second
Circuit found determinative in that case would not apply.83 The distinction, if
any, has to be one of degree and not of kind unless the bags are regarded as
prizes, which is unlikely.8 4

Nevertheless, we may never know how a court would rule. In
response to the IRS's asserted position, the Academy reached an agreement
with the IRS for past years, agreed to issue information returns to recipients
in 2006, and thereafter discontinued the practice. Still, the practice of
bestowing swag on celebrities has not so much died as evolved. At the 2010
Academy Awards (Oscars) public relations companies organized "gifting
suites" filled with expensive items free to celebrities, as well as consolation
gift bags to be given to losing nominees. In the confusion, the beat goes on.
Whatever comfort the average taxpayer may take from the taxpayer victory
in Gotcher and the IRS's apparent decision not to tax free samples unless the
taxpayer takes a charitable contribution deduction," its position on Oscar
swag bags shows that it does not in fact believe that free samples are
categorically not income. It knows Glenshaw Glass. What it appears to be
doing is applying an unarticulated de minimis rule, seeking to make the
Glenshaw Glass definition of income coextensive with the administered
definition only when it can do so because the public nature of the receipts,
the limited number of recipients and the size of the amounts involved make
them identifiable and worth taxing. Although, as the Second Circuit observed
in Haverly, the IRS is probably making a perfectly rational decision on how
to deploy its administrative resources, nothing in Glenshaw Glass or in
section 61 defines income as "accessions to wealth, clearly realized, over
which the taxpayer has dominion, and which are big enough and public

83. Commissioner Everson acknowledged that the motivation for the bags
was the same as for other free samples: "This has become big business for
companies promoting their products. These things aren't given without pride and
prejudice." I.R. 2006-128, 2006 TNT 160-6.

84. The prize characterization is most fitting in the case of the bags
delivered to the nominees who do not win the Oscar, as they are sometimes referred
to as "consolation prizes," but to say that Angelina Jolie receives a swag bag because
she has won the role of presenter seems fanciful given that the bag is not paid for by
the Academy but rather by the manufacturers of the products in it. In any event, if
the IRS uniformly applied the Gotcher rationale and looked to the motive of the
payor, the bags would not be income because the motives of the swag bag providers
are indistinguishable from those of VW-increased sales.

85. Kenney, supra note 82.
86. See Cheryl Wischhover, Oscars Swag 2010: It Gets Weird,

FASHIONISTA.COM, http://fashionista.com/2010/03/oscar-swag-2010-it-gets-weird/.
But see, I.R. 2006-128, 2006 TNT 160-6 (items taken from gifting suites are
income).

87. See Rev. Rul. 70-498, supra note 66 and accompanying text.

318 [Vol. 11:5



Defining Income

enough for the IRS to find." In any event, it is clear that the IRS attempts to
tax some accessions (swag bags) but not others (free books to book
reviewers), and no theory for distinguishing one situation from the other
exists.

Two final examples suffice to show the array of situations in which
the administrative application of the positive definition of income seems
confused. The first involves the iconic American game of baseball. When
contemporary players began to threaten long established home run records, it
was clear that any ball that broke such a record would become a collector's
item worth substantial amounts of money. When the records began to be
broken and a fan caught the record-breaking ball, the tax controversy
erupted. Practitioners, academics, and former IRS Commissioners all agreed
that catching the ball, like finding old currency in a used piano, which was
held to be income in a case known to virtually every student of taxation, 8

resulted in the realization of income.89 But the public and Congressional
outcry at such a prospect was fierce.90 How could the joy of catching the
record breaking-ball be marred by the prospect of the rapacious IRS pursuing
the fan for a cut of the good fortune? Legislation to ensure non-taxation was
introduced.91 One IRS Commissioner, not a lawyer, dissembled.92 Years
later, the Chief. Counsel of the IRS, not only a lawyer but a tax lawyer,
reportedly covered his head with his hands and captured the difficult position
the agency was in when he responded to the question whether the fan who
caught and kept the ball had income by saying, "Please don't ask me that." 93

Scholarly articles were written and the question was debated,94 but the IRS's
position remains unknown.

88. Cesarini v. United States, 296 F. Supp. 3 (N.D. Ohio 1969), aff'd, 428 F
2d 812 (6th Cir. 1970).

89. See Zelenak & McMahon, supra note 5, at 1300 (1999) (reporting
former IRS Commissioner Donald Alexander's opinion that a record-breaking
baseball is income when caught by a fan, documenting that Alexander's opinion was
"universally shared among tax experts," and attributing the "unanimity of expert
opinion" to its reliance on the literal language of Treas. Reg. § 1.61-14.). See also
Claim of Right, supra note 6, at 688 (2000).

90. See Zelenak & McMahon, supra note 5, at 1299.
9 1. Id.
92. Id.; CHARLES 0. RosSOTri, MANY UNHAPPY RETURNS 95 (2005). This

was possible because the Commissioner responded to a hypothetical question
involving a fan who caught the ball and then gave it to the player, which could be
analogized to a disclaimer. I.R. 98-56, 98 TNT 174-14.

93. Tom Herman, The Big Catch Could Have a Big Catch, WALL ST. J.,
July 25, 2007, at DI.

94. Zelenak & McMahon, supra note 5; Dodge, Claim of Right, supra note
6; Andrew D. Appleby, Ball Busters: How The IRS Should Tax Recordsetting
Baseballs And Other Found Property under The Treasure Trove Regulation, 33 VT.
L. REv. 43 (2008).

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The second example involves fish. Found money and found property
are income under the regulations, but how about caught fish? The expenses
incurred by the recreational fish catcher may exceed the value of the fish
caught,95 but in most cases expenses incurred by commercial fishing
operations will not. Catching fish produces a realized accession to the
taxpayer's wealth, within the taxpayer's dominion. Yet the IRS has taken the
position that caught fish are not income until sold. Despite opportunities to
do so and arguable provocation, the IRS has also declined to assert that the
value of big game trophies is income to the hunters, or that minerals are
income when removed from the ground.97 These discrepancies between the
positive law, including the dictates of the Treasury's own regulation, and the
IRS's administration thereof may be sound from the standpoint of tax
administration, but they have caused at least two prominent tax scholars to
call for the withdrawal of the regulation and the adoption of a position
generally treating only cash as income, except when equity strongly demands
otherwise to prevent abuse.98 That position has been resisted99 and the IRS
has shown no inclination to adopt it, but our objective here is not to debate
the merits of the competing positions. We use the controversy to illustrate the
difficulty of articulating an accurate and clear definition of the income that is
actually subject to tax. The IRS has not done it yet.

We have tried to demonstrate that although the Glenshaw Glass
definition of income appears clear and straightforward, its application has not
always been likewise. Some realized accessions over which the taxpayer has
dominion are income, others are not taxed despite the absence of a statutory
or even administratively stated exclusion, and still others are not taxed based
on administrative practice or pronouncement. Most significantly, we have
tried to demonstrate that a theory that satisfactorily explains the various
results has yet to be articulated. We now proceed to explore the source of the
difficulty.

95. This could still result in residual income because the expenses, even if
they could offset any income in theory under § 183(b), would be miscellaneous
itemized deductions not fully deductible in most cases.

96. Tax Highlights for Commercial Fishermen, IRS Pub. 595, 9 (1998).
Like Professors Zelenak and McMahon, supra note 5, to whom we are thankful for
the example, we do not question the wisdom of this position as a sensible
recognition of the likelihood that in all but the most unusual cases the catching and
the selling will take place during the same taxable year, and accounting for fish
caught but unsold would be administratively burdensome. Like them, however, we
recognize that such a position would not follow from a technically accurate
application of the Treasury's regulation.

97. Zelenak & McMahon, supra note 5, at 1302.
98. Id. at 1304-08.
99. Dodge, Claim ofRight, supra note 6, at 688.

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II. DEFINITIONS: A JURISPRUDENTIAL DETOUR

Why is it so difficult to define what income is actually subject to
tax? We now explore this question and offer as an answer the concept of
aptness. In Part III we will apply the idea of aptness to the problem of
defining income.

A. The Quest for Scientific Precision

From the time the Court decided Glenshaw Glass, scholars have
struggled with the definition of income. This struggle is arguably an iteration
of the more general struggle between those who see law as science and those
comfortable with a less definitive account. The struggle was manifest in the
debate over the search for a "comprehensive tax base" (a tax system free of
loopholes and base erosions), which raged during the late 1960s and
continues to this day with the claim that tax law suffers from a dislocation
from real world events, dubbed an ectopia, that dooms it to doctrinal
incoherence.

The first salvo in the battle over the search for a comprehensive tax
base ("CTB") was fired by no less an iconic tax scholar than Professor Boris
Bittker, who asserted that a "neutral, scientific definition of . . . income is a
mirage,"'oo and that efforts to use the Haig-Simons definition of income as
the point of departure for the development of a CTB that would serve as the
touchstone for developing a pristine tax system were doomed to failure.'o
Prominent public finance economists and legal tax scholars promptly
attacked Professor Bittker's apparent heresy, accusing him of
misunderstanding Haig-Simons, adopting an "untenable position" and even
doing no more than "suggesting ad hoc settlements."' 0 2 In response,
Professor Bittker remained undaunted, sardonically expressing the hope that
the search for a CTB, which he derided as "an encompassing verity" would
not lead its proponents into that "dank, miasmic, myxomycetous sump" that
his detractors would probably like to call "Bittker's Quagmire."' 03

100. Boris I. Bittker, A "Comprehensive Tax Base" as a Goal of Tax
Reform, 80 HARV. L. REV. 925 (1967) (hereinafter Bittker, CTB as Goal).

101. Id. at 925.
102. See Joseph A. Pechman, Comprehensive Income Taxation: A

Comment, 81 HARV. L. REV. 63 (1967) (accusing Professor Bittker of
misunderstanding Haig-Simons); R.A. Musgrave, In Defense of an Income Concept,
81 HARv. L. REV. 44 (1967) (accusing Professor Bittker of adopting an "untenable
position"); and Charles 0. Galvin, More on Boris Bittker's Comprehensive Tax
Base: The Practicalities of Reform, the ABA's CSTR, 81 HARV. L. REV. 1018, 1019
(1968) (accusing Professor Bittker of doing no more than suggesting "ad hoc
settlements").

103. Bittker's CTB Response, supra note 6, at 1041.

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Although the current income tax system is far from the CTB, the
desire for scientific precision continues. Recently, it has taken the form of
Professor John Prebble's claim that tax law suffers from ectopia, which he
describes as a regime of legal doctrines that have no relationship to real
world events and which are therefore doomed to doctrinal incoherence. The
oddity of income tax law, in Professor Prebble's view, is that, unlike other
fields of law, tax law necessarily relies on artificial concepts and definitions
that do not answer to an underlying economic reality, and the pervasive
indeterminacy that results from this ectopia is, therefore, ineradicable from
the law of taxation. At the heart of this problem is the concept of income,
which Professor Prebble believes "is not something that ultimately can be
defined by law because it is not something that exists either as a physical fact
or as an abstract thought."'0

We offer a critique of ectopia because we see it as an iteration, albeit
an extreme one, of the yearning for scientific precision in tax law, which we,
like Professor Bittker, believe is doomed to failure, like obtaining hydration
from a mirage. Our critique, and our development of the concept of aptness,
shows that abandoning the search for scientific precision need not lead to a
"dank, miasmic, myxomycetous sump," but can instead provide space for
articulation of a multiplicity of values. These values include but are not
limited to economic values. In this way, tax is no different from other areas
of law, where multiple values inform the development of doctrine. os

104. John Prebble, Ectopia, Tax Law and International Taxation, 1997
BRITISH TAX REV. 301, 310 (2002).

105. Many judges, lawyers, and tax scholars view tax as a self-contained
body of law that differs from other areas of law and believe that tax lawyers are
somehow different from other "normal" lawyers. Furthermore, the complexity of tax
statutes has led some to advocate approaching statutory construction differently in
the context of tax statutes. See Paul L. Caron, Tax Myopia, or Mamas Don't Let
Your Babies Grow up to Be Tax Lawyers, 13 VA. TAX REV. 517, 519-32 (1994)
(discussing the "myth" that tax law and tax lawyers are different); Leo P. Martinez,
The Summons Power and the Limits of Theory: A Reply to Professor Hyman, 71
TUL. L. REv. 1705, 1714-16 (1997) (suggesting that courts afford tax legislation a
greater than normal level of deference due to the special importance of tax laws for
the functioning of the government). But see Kristin E. Hickman, The Need for Mead:
Rejecting Tax Exceptionalism in Judicial Deference, 90 MINN. L. REv. 1537 (2006)
(urging that tax regulations deserve the same level of judicial deference as any other
regulations). David A. Hyman, Procedural Intersection and Special Pleading: Is Tax
Different?, 71 TUL. L. REv. 1729, 1744 (1997) (criticizing the view the tax laws are
different and advocating a less self-contained approach to tax); JOSHUA D.
ROSENBERG & DOMINIC L. DAHER, THE LAW OF FEDERAL INCOME TAXATION, §
1.02, at 4-5 (2008) (stating that "tax laws are not so different from any other laws,"
despite the fact that tax laws are judged primarily based on their economic impact,
which differs from the manner in which many other laws are evaluated, and that
equity standards applied to tax and nontax laws tend to be different). In deciding that

322 [Vol. 11:5



Defining Income

The Prebble position echoes one offered by Professor John Miller in
1993, when he argued that the Internal Revenue Code comprises a set of
"creational" rules. His idea was that "the income tax has no counterpart in
reality antedating its enactment in the same sense that a murder statute may
be antedated by the act of killing someone and the societal disapproval that
act may engender."1 0 6 Professor Miller analogized tax law to a game, of
which "the rules are an inseparable and definitional part."1,o If tax law is a
game, created by the legislature, it has the possibility of being pristine
because it can be created that way. If the definition of income tracks Haig-
Simons (except when it has to depart to accommodate the administrative
necessity for realization), 0 8 then it can be precise, because economic
accessions can be counted in dollars and added up with mathematical
accuracy. But we do not believe that such precision is attainable.

Professors Miller and Prebble invoke a pre-law world-an
"underlying reality" 1 09-that, much like classical economics, appears to have
an identifiable nature independent of human interpretation and thus
independent of any constitutive effects produced by rules devised by
humans. For example, in Professor Prebble's view, the rules of criminal law
or torts (to take two of his examples) map reasonably well onto this
antecedent "natural world.""10 By contrast, although there is a "natural
world" of economic transactions that income tax law regulates, Professor
Prebble argues that tax law does so with definitions that do not reflect that
world, which leads to a legal regime full of incongruities, indeterminacies,
and consequent instability.

Is this contrast between criminal law and tort law, on the one hand,
and income tax law, on the other hand, correct? For example, does a

tax regulations are entitled to the same level of deference as other regulations, the
Supreme Court has recently cast its lot with the non-exceptional view. Mayo
Foundation v. United States, 131 S. Ct. 704 (2011).

106. John A. Miller, Indeterminacy, Complexity, and Fairness: Justifying
Rule Simphfication in the Law of Taxation, 68 WASH. L. REv. 1, 68 (1993).

107. Id. at 62. Professor Miller explicitly connects this idea to John Rawls's
concept of a "practice." Id. at 62 n.288, 68 n.319. Rawls defines a practice as "any
form of activity specified by a system of rules which defines offices, roles, moves,
penalties, defenses, and so on, and which gives the activity its structure. As
examples one may think of games and rituals, trials and parliaments." John Rawls,
Two Concepts ofRules, 64 THE PHILOSOPHICAL REVIEW 3, 3 n. 1(1955).

108. See SIMONS, supra note 4.
109. John Prebble, Fictions of Income Tax 13 (Victoria University of

Wellington Centre for Accounting, Governance, and Taxation Research, Working
Paper Series, Paper No. 7 2002), Centre for Accounting, Governance, and Taxation
Research, at http://www.victoria.ac.nz/sacl/cagtr/working-papers/WPO7.pdf.

110. John Prebble, Income Taxation: a Structure Built on Sand, 24 SYDNEY
L. REv. 301, 310 (2002).

2011] 323



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homicide statute, as Professor Miller suggests, map onto an antecedent
reality: the killing of a human being? Clearly not. There are substantial
categories of killings that are not homicides, such as killings by state
executioners, and killings by the insane, killings in self-defense and in
defense of others. Conversely, there are homicides such as felony murder and
various accomplice and conspiracy-based homicides that do not involve the
killing of a human being by the accused. Nothing in the "natural world"
accounts for these distinctions. The willful, deliberate, and premeditated
killing of a convicted murderer by the state executioner differs from the
willful, deliberate, and premeditated killing of an organized-crime rival only
by social and legal convention and the values that inform them. Without
denying any "natural occurring phenomena," we could treat both the same,
just as English law used to treat killing in self-defense as a criminal
homicide,"' without running afoul of the "physical facts."

The reason that no underlying scientific reality answers to legal
claims about homicide or income becomes apparent when we examine
Professor Prebble's proffered example of a claim that straightforwardly maps
onto things that "exist in the natural world,"'12 namely, the claim that
"Kilimanjaro is in Tanzania."ll 3

Let us begin with Tanzania. As Professor Prebble acknowledges,
national entities are "defined by the actions and agreements of people, not by
nature.""14 Nonetheless, he insists that "the definitions that we employ are
definitions (borders) that themselves are defined by reference to natural,
physical features of the landscape." Accordingly, there is a "required logical
connection between a country and a mountain or a river in that country."115

But, of course, there is no logical connection between a country's borders
and topographic features. That relationship is entirely contingent, and the
world is full of counter-examples. (Consider the border between the Koreas
or between Canada and the United States.) Thus, whether Kilimanjaro is in
Tanzania (as opposed to some other country) is entirely dependent on
"actions and agreements of people." It is not just science.

What about Kilimanjaro? Is it logically connected to a physical,
scientific reality? Not at all. Do foothills count as part of a mountain? If the
answer is no, then Kilimanjaro is currently in Tanzania; if the answer is yes,
then part of Kilimanjaro is in Kenya. The answer to the status of the foothills
cannot be determined by reference to an underlying physical reality. The
decision whether to include the foothills in the definition of "mountain" is,
again, conventional, not scientific: it depends on the "actions and agreements

111. GEORGE P. FLETCHER, RETHINKING CRIMINAL LAW 344, 352 (1978).
112. Id. at 310.
113. Prebble, supra note 104, at 388.
114. Id.
115. Id.

[Vol. 11:5324



Defining Income

of people." And these actions and agreements are informed by the values of
those who enter into them.

The point, of course, is that there is no antecedent reality that is
presented to us without being "always, already" conceptualized. This bears
emphasizing: It is not that there is no real world independent of human
thought, but that that real world is never present to us free of
conceptualization-conceptualization that represents the world with a
particular form and order. And those concepts, and the form and order they
engender, are necessarily conventional and, therefore, contingent and
provisional. This is true of "Tanzania," of "Kilimanjaro," and of "income."
An individual can receive a $100 bill that is hers to keep, or she may show
great happiness when seeing a loved one, but whether either of those
observable events are income requires more than observing them. It requires
defining income, and reference to scientific, observable phenomena is not
enough.

As with Tanzania or Kilimanjaro, the success of the definition of
income is a function of its "aptness." It is to this notion of aptness that we
now turn.

B. Aptness

We develop the idea of aptness by focusing on the relationship
between the definition and the goals and values it is meant to serve. In this
view, legal definitions are instruments that are designed to promote particular
ends. The aptness of a definition, then, is a measure of its success in realizing
those ends.' 16

Those ends or purposes, of course, are contingent. As society
changes over time, the ends that a given legal definition furthers can

116. For earlier views that goals and values are fundamental to
understanding law, see, e.g., William N. Eskridge, Jr. & Philip P. Frickey, An
Historical and Critical Introduction to The Legal Proces, in HENRY M. HART, JR. &
ALBERT M. SACKS, THE LEGAL PROCESS: BASIC PROBLEMS IN THE MAKING AND

APPLICATION OF LAW xci-xcii (William N. Eskridge, Jr. & Philip P. Frickey eds.
1994) (legal process movement); L.L. Fuller & William R. Perdue, Jr., The Reliance
Interest in Contract Damages, 46 YALE L.J. 52, 52 (1936) ("[L]egal rules can be
understood only with reference to the purposes they serve."); Thomas C. Gray,
Freestanding Pragmatism, in THE REVIVAL OF PRAGMATISM: NEW ESSAYS ON

SOCIAL THOUGHT, LAW, AND CULTURE 256 (Morris Dickstein ed. 1998)
("pragmatist jurisprudence" understands "legal thought" to be both "contextual" and
"instrumental"); Kenneth Heinar Himma, Natural Law, in INTERNET ENCYCLOPEDIA

OF PHILOSOPHY (James Fieser & Bradley Dowden eds., 2005),
http://www.iep.utm.edu/natlaw/. ("According to natural law theory of law, there is
no clean division between the notion of law and the notion of morality.").

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change." 7 Moreover, in a complex society, the ends are multiple. Thus, for
instance, tort law and the concepts that constitute it are shaped by a
collection of goals and values that include compensation of innocent victims,
imposition of liability on individuals whose conduct is blameworthy, and
imposition of liability on individuals who cause harm to others." To take
another example, criminal law is defined by goals and values that include
retribution, utility, and autonomy.

A quick examination of these two examples shows that the goals and
values that define a legal field are not only multiple, but heterogeneous.
Compensation, fault, and causation cannot be reduced to one another, nor
can they be subsumed under a single, broader rubric. The same is true of
retribution, utility, and autonomy. Being heterogeneous, these goals and
values are potentially in tension and even conflict. Indeed, at the risk of
anthropomorphism, we can think of the multiple, heterogeneous goals and
values that constitute a field of law as competing with one another for
attention through the formulation of the various concepts that give legal
content to the field.119

In this Part we use these characteristics of multiplicity,
heterogeneity, tension, conflict, and competition to develop a number of
ideas that will be important for addressing the problem of defining income.
We first seek to explain why some applications of the law are easy while
others are controversial, and that distinction will help clarify what determines
the aptness of a legal definition. An apt definition, we will argue, tends to
generate a preponderance of easy applications. We will then examine the
important difference between a rule and a standard and discuss how each can
be apt. Finally, we will focus on a particular goal/value that plays a dominant
role in determining the aptness of definitions in public law fields, including

117. Even more fundamentally, the very existence of a coherent set of ends
furthered by a given legal definition is generally contingent on the existence of a
high degree of social consensus. The significance of this dependency for the
definition of income will become apparent later in Part III.

118. The division in tort law between blameworthiness (fault) and causation
is illustrated by Sindell v. Abbott Laboratories, which adopted the theory of market
share liability. See infra notes 120-24 and accompanying text. In Sindell each
defendant could be shown to have behaved in a blameworthy manner (as described
by the court), but could not be shown to have caused harm to anyone in particular.
Conversely, a person can cause harm to someone without acting in a blameworthy
manner (a careful driver who kills a child who dashes out from between two parked
cars, for example).

119. E.g., Sindell v. Abbott Labs., 607 P.2d 924 (Cal. 1980) (market share
liability in torts); Mapp v. Ohio, 367 U.S. 643, 659-60 (1961) (discussing tension
among goals and values of law enforcement, judicial integrity, and individual
liberties).

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income taxation: administrability. Finally, we will see how administrability
pushes public law definitions to prefer rules over standards.

1. Controversial vs. Easy Applications of the Law

If we imagine the various goals and values comprised by a particular
field of law as having directional vectors, we can think of an easy case as one
in which those vectors point in roughly the same direction: toward the same
outcome. Conversely, in a controversial case the vectors point in
significantly different directions and, therefore, toward different outcomes.
Consider, for instance, the market share liability rule developed in Sindell v.
Abbott Laboratories. 1 20

This litigation concerned cancer suffered by daughters of mothers
who had ingested diethylstilbestrol (DES) during their pregnancies. The
defendants in the suit were various companies that had manufactured and
marketed DES as an anti-miscarriage drug.

Although the culpability of the companies was established, 12 ' not
one of the injured parties could prove which company had manufactured the
specific drug that her mother had taken during pregnancy. Thus each of these
victims was asking the court to hold various drug companies liable for her
injuries although she could not establish a causal connection between her
injuries and the conduct of any particular company. Indeed, since the
defendants accounted for ninety percent of the DES that was placed on the
market, there was a ten percent chance that none of the defendants had
caused any particular injury.

The California Supreme Court resolved the case by requiring each
drug company to pay a share of the plaintiffs' injuries equal to the
company's share of the DES market. A company could avoid this liability
only by showing that it could not have caused the injuries. Thus, the
California court allowed the injured parties to recover damages from the
defendants without having to establish a causal connection between the
injuries and the conduct of any particular defendant.

The court was clearly aware of the tension in this case among the
goals and values of compensation, culpability, and causation, and of its
denigration of causation in favor of the other two. Although the three
dissenting justices were unwilling to jettison the requirement of causation, 12 2

the majority emphasized the innocence of the plaintiff and the culpability of
the defendants, who were the only parties in a position to have prevented the
harm caused by their product.123

120. Snidell, 607 P.2d at 924.
121. Id. at 925-926.
122. Id. at 938.
123. Id. at 936.

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When goals and values collide, as they did in Sindell, the court could
have resolved the matter if it had been able to identify some applicable
metaprinciple. But no such legal metaprinciple exists. The precedents that
inform the law of torts express doctrines that permit imposition of liability in
the absence of culpability (e.g., a manufacturer's strict liability for injuries
caused by a defective product), in the absence of causation (e.g., an
employer's liability under the doctrine of respondeat superior for torts
committed by employees), and in the absence of injury (e.g., the imposition
of so-called "nominal" damages for the mere invasion of a legal right). Thus,
none of the principles under consideration expresses a necessary condition
for liability as a general matter, nor do the precedents indicate a fixed
hierarchical or lexicographical relationship among the principles.

Faced with a controversial case in which important goals and values
clashed, in the absence of guiding metaprinciples the Sindell court was
required to choose which goals or values to vindicate and which to sacrifice.
The majority chose to vindicate compensation and culpability and to
sacrifice causation. The dissent would have subordinated compensation and,
to some extent,124 culpability, to causation.

By contrast, in an easy tort case (such as a two-car automobile
accident caused by the careless inattention of one of the drivers), the
compensation, culpability, and causation principles all point toward the same
conclusion. Accordingly, no matter how the court prioritizes the various
goals and values that comprise the field, the outcome of the easy case
remains the same.

It is important to keep in mind that the ends served by a field of law
are contingent and can change over time. That means not only that the goals
and values themselves can change, but also that the way in which they are
understood can change. That, in turn, means that what is an easy or
controversial case at one point in time can become its opposite at another
point. For example, when the United States Supreme Court held that the
Constitution permitted racially segregated railroad cars in Plessy v.
Ferguson,12 5 it bolstered its conclusion with the apparently uncontroversial
example of "the establishment of separate schools for white and colored
children." 26 Accordingly, in 1896 the Supreme Court would have regarded
the constitutionality of racially segregated public schools as an easy case.
However, a series of Supreme Court decisions and an altered social climate

124. The implication of the dissent is to clearly subordinate culpability to
causation. However, the dissenters conflate causation and culpability, in that they
appear to believe that the drug companies are not really culpable since they can't be
shown to have caused harm. For this reason we use the hedging language "to some
extent."

125. Plessy v. Ferguson, 163 U.S. 537 (1896).
126. Id. at 544.

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transformed that easy case into a hard case, culminating in Brown v. Board of
Education,'27 which held segregated public schools unconstitutional.128

2. The Aptness of a Legal Definition

We can now define the aptness of the definition of a legal concept
like income as its tendency to further the goals or values that constitute a
field of law. By so doing, an apt definition will generate a preponderance of
easy applications, in which the goals and values served by the definition
point toward the same conclusion. It bears emphasizing that "preponderance"
is, as the word suggests, a relative measure. Some apt definitions will
generate more controversial applications than others, as the discussion of
rules and standards in the next section will illustrate. However, when a
definition is apt easy applications preponderate.

As an example of an apt definition, consider "cause" in criminal law.
The Model Penal Code provides that "[c]onduct is the cause of a result when
it is an antecedent but for which the result in question would not have
occurred." 2 9 This definition is notoriously under- and over-inclusive.
Nonetheless, the but-for definition of cause works terrifically well in reliably
identifying causal behavior that we wish to punish as criminal, and it works
well because it is apt. It succeeds in both of the senses identified above: first,
the definition can be demonstrated to serve effectively all of the core values
of criminal law: retribution, utility, and autonomy. Second, because it
furthers the core values of criminal law so well, those values all point toward
the same conclusion regarding causation in the great run of situations, while
holding controversial applications (where the core values point toward
different conclusions regarding causation) to an acceptable level.

We can contrast the aptness of but-for causation by comparing it to a
famously inapt definition: the specification of the crime of "vagrancy" in a
Jacksonville, Florida ordinance struck down as unconstitutionally vague in
the 1972 case Papachristou v. City of Jacksonville.13 0 The language of the
ordinance was so vague that it failed "to give notice of conduct to be
avoided"' 3' and thereby placed "unfettered discretion ... in the hands of the
. . . police," 3 2 transmuting all sorts of ordinary conduct into potential
violations of the law, depending on whether the police wished to respect the
autonomy of the individual or saw the individual as a threat to the social

127. Brown v. Board of Education, 347 U.S. 483 (1954).
128. See generally RICHARD KLUGER. SIMPLE JUSTICE: THE HISTORY OF

BROWN V. BOARD OF EDUCATION AND BLACK AMERICA'S STRUGGLE FOR EQUALITY

(1975).
129. MODEL PENAL CODE § 2.03(1)(a) (Proposed Official Draft 1961).
130. Papachristou v. City of Jacksonville, 405 U.S. 156 (1972).
131. Id. at 166.
132. Id. at 168.

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order. Consequently, there were virtually no easy applications. And the
reason for the defect is found in a single paragraph early in the Court's
opinion, where it notes that the statute was "derived from early English law"
designed to address "labor shortages" caused by the "breakup of feudal
estates," and subsequently "became criminal aspects of the poor laws."1 33

Thus, however apt the language might have been given the historical goals
and values promoted by the English vagrancy statutes, those specific goals
and values no longer obtained in late twentieth-century Florida.

3. Rules and Standards

Our claim that an apt legal definition generates predominantly easy
applications requires some further clarification. Specifically, we need to
attend to two types of formulations: rules and standards. A rule can be
likened to an on-off light switch: it is formal, and in the great majority of
circumstances the rule either clearly applies or clearly does not. A statute of
limitations is a familiar example. By contrast, a standard acts like a dimmer
switch for a light: it allows for infinite gradation between on and off.
Application of a standard tends to be contextual and fact-sensitive. Examples
include negligence (lack of reasonable care) in tort law.

If a field of law is constituted by a particular set of goals and values,
then we can understand the difference between rules and standards from that
perspective. Insofar as a definition within the field promotes fewer than all
the goals and values or rests on a particular priority among the values, it will
seem rule-like. This is because only those facts necessary to determine
whether the favored goal or value is satisfied need be determined and
because other goals and values are not in play to point the analysis in
different directions.

Conversely, insofar as the definition promotes many or all of the
goals and values simultaneously and without preference, it will seem
standard-like. The increased number of values in play will push the analysis
in different directions and will require many more facts to be determined.
The analysis will therefore be much more contextual and complex. 13 4

Because the goals and values that constitute a field are
heterogeneous-because they cannot be reduced to one another or
collectively subsumed under another goal or value-they will, as suggested
earlier, compete for attention in the formulation of a legal definition.
Accordingly, we can understand Professor Carol Rose's analysis of the rule-

133. Id. at 161-62 (citations omitted).
134. See, e.g., Popov v. Hayashi, No. 400545 (San Francisco Super. Ct.

Dec. 18, 2002) ("using a contextual" analysis to resolve dispute over "possession" of
Barry Bonds's seventy-third home run baseball).

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standard dialectic1 3 5 as follows. At any given moment in the development of
the field, certain goals and values will gain ascendency and generate
definitions that use rule-like formulations to promote them over the other
goals and values. However, the demoted goals and values may continue to
compete for attention and over time generate changes in the definition that
muddy it up and move it more in the direction of a standard. But the
competition doesn't stop, and we can expect at some point in time that once
again certain goals and values will contingently gain ascendency and
generate more rule-like definitions. And the cycle continues.

Both rules and standards can be apt. Because a rule generally reflects
a prioritization of the core values of the field, promoting certain values and
sacrificing others, there should be very few instances in which values point
in different directions when the rule is applied, and the ratio of easy to
controversial applications should, consequently, be very high. For instance,
we would expect a very small proportion of statute of limitations issues to be
controversial. 36

In contrast to rules, standards generally require for their application
that virtually all the core values be considered in the context of the particular
case. And for this very reason standards can generate many controversies.
Nonetheless, a standard can be apt as long as the ratio of easy applications
(where all the relevant values point toward the same conclusion) to
controversial applications (where the values point to different conclusions) is
high. Negligence illustrates this. While this dimmer-switch-like standard,
with its focus on nuance and context, generates many more disputes than
does an on-off rule like a statute of limitations, the easy applications still
predominate. If we consider the countless everyday physical encounters
(pedestrian bumps, fender-benders, etc.) that are quickly resolved by means
of an apology or informal compensation, we quickly realize that as a
practical matter the question whether behavior constitutes reasonable care is
easily resolved in the vast majority of situations.137

How does that happen? How is it that the all-things-considered
judgments required by a standard can generate predominately easy
applications? The answer appears to lie in a contingent social fact: If there is

135. Carol M. Rose, Crystals and Mud in Property Law, 40 STAN. L. REV.

577 (1988).
136. However, for a rule to be apt, two conditions must usually be met. The

first is that the rule must reflect values that define the field. The second condition is
that the prioritization of core values reflected in a rule must be politically and
socially acceptable. A failure to meet either or both of these conditions would
generate noncompliance or legal challenges.

137. Of course, an additional reason for a lack of formal controversy is that
the injury is too trivial to litigate. The significance of this factor will become
apparent in the consideration of the distinction between public and private law. Infra
notes 138-40 and accompanying text.

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a widely shared understanding of the goals and values that underlie the field,
then a standard that reflects those values will be apt. The significance of
social consensus becomes clearer as we consider the distinction between
private and public law and the important public law value of administrability.

Two particular features distinguish public from private law. The first
of these is institutional. Governmental institutions monopolize the
enforcement of public law, while enforcement of private law is primarily in
the hands of individuals, with the government serving as enforcer of last
resort. Again, the vast majority of issues involving questions of negligence-
a private law question-are resolved privately. Easy applications routinely
stay in the hands of private individuals (people do not litigate accidental
bumps in a crowd), and many controversial applications are similarly
resolved privately without litigation (by negotiating compensation or
ignoring the matter). Indeed, individuals are free to invent the standards
governing their relationships, as long as such standards do not violate legally
enforced social policies.138 The government, largely through the judiciary, is
invoked only when these private negotiations fail and the stakes are
sufficiently high.

By contrast, individuals cannot decide for themselves whether a
particular accession to wealth is taxable or whether particular behavior is
criminal. 3 9 Income tax law and criminal law, two paradigmatic examples of
public law, are binding on all and are principally interpreted, applied, and
enforced by agencies of the government.

A second feature that distinguishes public from private law is, in
some ways, the flip side of the first. Because public law is enforced by the
government and potentially applicable to everyone, administrability should
be a centrally important value. A legal definition is administrable to the
extent that it can be applied easily and without excessive controversy by the
governmental agency charged with its enforcement. In the competition

138. See ROBERT C. ELLICKSON, ORDER WITHOUT LAW: How NEIGHBORS
SETTLE DISPUTES pt. 1 (1991) (describing how cattle ranchers in Shasta County,
California resolve disputes using informal norms rather than law); see generally id.
pt. II (setting out a "theory of how people manage to interact to mutual advantage
without the help of a state or other hierarchical coordinator"); and Stewart Macaulay,
Non-Contractual Relations in Business: A Preliminary Study, 28 AM. SOCIOLOGICAL
REV. 1 (1960) (study of use of informal norms rather than contract law to structure
business relationships).

139. The problem of triviality is more complicated. Minor accessions to
wealth or instances of criminal behavior may be overlooked because private
individuals fail to bring them to the attention of the government. However, while
private law permits private individuals to resolve such issues among themselves;
public law does not. Law enforcement officials may decide that a particular offense
is not worth the expenditure of resources to prosecute; however, the law does not
delegate that kind of determination to private persons.

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among the congeries of values that constitute a given field of public law, the
importance of administrability will tend to push definitions in that field
toward rule-like formulations for two reasons. First, the central importance
of administrability will cause it to dominate in the competition among goals
and values, and definitions that reflect the domination of a single goal or
value will tend to be rule-like. Second, administrability itself suggests rule-
like definitions since the on-off nature of rules tends to support many of the
qualities associated with administrability: clarity, simplicity, dependence on
discoverable information, and predictability- and, not coincidentally, few
controversial applications.14 0 The dimmer-switch quality of standards, on the
other hand, tends to defeat administrability with its insistence on highly
nuanced, contextual application of multiple, heterogeneous values. That is,
because of the all-things-considered requirement of a standard, its
application is less efficient and simple than the more limited considerations
required by a rule.

Of course, administrability is a value in all fields of law because
some governmental institution will have the responsibility for policing (i.e.,
administering) the law's implementation. But in private law this
responsibility falls to the courts, which are called upon only as a last resort;
following the law is largely in the hands of private individuals. Accordingly,
administrability isn't a powerfully important value, and in the ongoing
competition it will not consistently dominate the formulation of definitions.
Hence, private law makes frequent and successful use of standards (e.g., the
negligence standard in torts). But tax is public law, and administrability is
crucially important, so we would expect the definition of a key concept like
income to be a rule or be inapt. We will now show that it is neither.

III. APTNESS IN THE TAx LAW

Individuals have tax responsibilities even if they do not do anything
wrong and do not want to pay taxes, and these responsibilities are triggered
by the receipt of gross income.14' The definition of income is therefore of
central and foundational importance. Yet, as we demonstrated in Part I, a
definition that accurately describes what is subject to tax does not exist.
Although Glenshaw Glass purports to provide a definition of income in the

140. The qualities that constitute administrability have an affinity with the
qualities identified by Lon Fuller as constituting the "internal morality of law"-
qualities he regarded as necessary to fulfill law's function as "the enterprise of
subjecting human conduct to the governance of rules." See FULLER, supra note 51,
ch. 2.

141. Not all gross income will become taxable income because of the
existence of deductions, and even the existence of taxable income may not result in
positive tax liability because of the existence of credits, but the receipt of gross
income raises the possibility of the existence of ultimate tax liability.

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tax law, there is an apparent incongruence between the arguable reach of that
definition and the income that is actually subject to tax. In our discussion of
aptness in Part II we saw that a definition that generates many contestable
cases may be inapt. Accordingly, we now turn to determining whether the
Glenshaw Glass definition of income is inapt for this reason.

A. Values in the Tax Law

The first step in determining aptness is an identification of the goals
and values in the tax law. Identifying the principal goal of the income tax
system is easy: the tax system exists to raise revenue. Redistribution of
wealth and shaping behavior are secondary objectives, and whether they are
proper objectives at all is debatable, but there can be little disagreement that
the primary goal of the income tax system is to raise revenue.14 2 Important
policies determine how the revenue is raised. Those policies are usually
described as a trinity: equity,14 3 efficiency,1" and simplicity,14' but that
listing is misleading for two reasons.

First, it does not capture the degree to which each of the items is
valued. In most discussions of tax policy, equity and efficiency take center
stage.14 6 Not only is simplicity always third, but it is a very distant third.
Often it is not discussed at all, and when it is, it appears in the role of an
intruder crashing the theoretical party. Although simplicity is often touted as

142. Our analysis is deliberately confined to the income tax. Other taxes,
such as wealth transfer taxes (estate, gift, and generation skipping) have other
principal objectives.

143. Equity takes two forms. Horizontal equity refers to the taxation of
similarly situated taxpayers similarly. Vertical equity refers to taxing in proportion to
ability to pay so that tax burdens rise as ability to pay raises. Both forms are
contested, as it is often difficult to determine the way in which the similarity of
situations should be determined and the proposition that tax the rate of tax should
rise as ability to pay rises is hotly debated. Although scholars, policy makers, and the
public differ on how they define equity, there is general agreement that equity is an
important goal of the tax system.

144. Efficiency is generally defined in economic terms, in which an
efficient system is one that does not interfere with the actions of participants in the
marketplace. The more a system interferes with economic activity, such as by
providing more favorable tax consequences for one activity than another, the more
inefficient it is. Sometimes the inefficiency is deliberate, as in the case of tax
expenditures.

145. See, e.g., GRAETZ & SCHENK, supra note 9, at 28.
146. See Samuel A. Donaldson, The Easy Case Against Tax Simplification,

22 VA. TAx REv. 645, 652-53 (2003); David A. Weisbach, Line Drawing, Doctrine,
and Efficiency in the Tax Law, 84 CORNELL L. REv. 1627, 1649 (1999); Deborah L.
Paul, The Sources of Tax Complexity: How Much Simplicity Can Fundamental Tax
Reform Achieve?, 76 N.C. L. REv. 151, 157 (1997).

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Defining Income

desiratum, it seems to have little actual traction since the tax laws get more
complicated every year and the trend shows no sign of abating. Simplicity is
lauded as an objective, but in the end it usually gets left on the cutting room
floor. 147

Second, simplicity is not the whole story. Simplicity can be
important in producing an equitable and efficient system, but it does not
necessarily do so,145 and we believe it is more appropriately thought of as a
part of what makes the tax law administrable. As we argued in Part II,
administrability is a centrally important value in any field of public law, and
having an administrable tax law is what makes it possible for the system to
raise the revenue which is its raison d'etre. An unadministrable system will
almost certainly be inequitable and inefficient because it will affect taxpayers
arbitrarily, resulting in inequity and inefficiency. Simplicity enhances
administrability and administrability is necessary so that the system can raise
revenue in an equitable and efficient way. Administrability requires
simplicity, but it requires other things as well.

Administrability includes transparency, as well as the procedures and
practices necessary for the collection of revenue, such as designing and
printing forms and instructions and providing mechanisms for audit,
assessment, and enforcement.14 9 Because the concept of administrability
captures the reason for including simplicity as a tax policy value but is more
comprehensive, we believe that it is more descriptively appropriate and we
adopt it in our analysis. We consider administrability to consist of the
interaction between simplicity, transparency, and the operational mechanics
that makes a system work to achieve its objective of collection of revenue in
an equitable and efficient manner.

147. GRAETZ & SCHENK, supra note 9, at 31, see Steven A. Dean,
Attractive Complexity: Tax Deregulation, The Check-The-Box Election, and the
Future of Tax Simplification, 34 HOFSTRA L. REV. 405 (2005); Steve R. Johnson,
The E.L. Wiegand Lecture: Administrability-Based Tax Simplification, 4 NEV. L.J.
573, 583 (2004); Donaldson, supra note 146, at 647.

148. For example, a head, or per capita tax, is simple, but very inequitable,
and a tax on wages, but nothing else, is also simple, but it is not only inequitable but
also very inefficient as taxpayers have every incentive to receive compensation in
non-wage forms.

149. GRAETz & SCHENK, supra note 9, at 71-74, 78-80; GAO,
UNDERSTANDING THE TAX REFORM DEBATE: BACKGROUND, CRITERIA, &
QUESTIONS 45-52 (2005); McDANIEL ET AL., supra note 9, at 27-32; see Anthony
C. Infanti, Tax Equity, 55 BUFFALO L. REV. 1191, 1202 (2008) ("[A]n
'administrable' tax is one that minimizes the burdens on taxpayers in complying
with it and reduces the costs to the government of enforcing it."); see Johnson, supra
note 147, at 580; William G. Gale & Janet Holtzblatt, The Role of Administrative
Issues in Tax Reform: Simplicity, Compliance, and Administration, in GEORGE R.
ZODROW & PETER MIESZKOWSKI, UNITED STATES TAX REFORM IN THE TWENTY-
FIRST CENTURY 9-13 (Cambridge Univ. Press 2000).

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Conceptualizing simplicity as part of the larger concept of
administrability does not rescue it from the back of the policy pack, however.
In most tax policy discussions, when issues of administrability are discussed
at all, they are portrayed as near-afterthoughts, as considerations that must be
tolerated, but not embraced. Administrability is the housework of tax
policy.s 0

B. The Importance ofRules

Not coincidentally, the realization requirement, so crucial to the
administrability of the income tax system, is a rule. Realization requires an
event that changes a taxpayer's legal relationship to property. In Helvering v.
Bruun the Court held that a landlord whose tenant built a building upon
leased land and then abandoned the lease had income in the amount of the
value of the new building.' 5 ' The landlord's legal relationship to the building
changed upon the tenant's abandonment of the lease because as a result of

150. Administrability played a role in the debate over the proper treatment
of caught record breaking baseballs, but its role was controversial and illustrates its
uncertain status as a policy value. Professors Zelenak and McMahon asserted that
one reason to embrace their view that "income is cash except when it can't be to
prevent avoidance" is that it has the "attainable virtues" of ease of valuation and of
liquidity, Zelenak & McMahon, supra note 5, at 1304, but Professor Dodge was
unpersuaded, opining instead as follows.

[T]he income tax base has been, and perhaps should be, modified
to take into account practical concerns such as difficulty or
impossibility of valuation and nonliquidity is commonplace. But
practical concerns do not automatically trump other norms.
Nevertheless, insofar as Zelenak and McMahon are arguing that
practical concerns should be taken seriously, I would not only
concur but advance the point a step further: accommodation to
practical considerations should not be viewed as a 'retreat' from
'principle,' but rather as a 'shift' to a different kind of principle,
namely, a 'legal' (as opposed to 'economic' or 'fairness')
principle. Legal issues that are relevant to the present discussion
include: (1) whether or not rules that can rarely be enforced, or
which are enforced at the whim of officials, are 'rules' worth
having, and (2) whether various distinctions among tax categories
are coherent and intelligible. Admitting legal norms into tax policy
debates should not be a cause for embarrassment.

Dodge, Claim of Right, supra note 6, at 693 (footnotes omitted). Professor Dodge's
characterization of administrability as proceeding from a "different" principle
consigns it to second class status.

151. Helvering v. Bruun, 309 U.S. 461 (1940).

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the abandonment the landlord acquired rights, such as the right to take
possession of or re-lease the building, which it did not have before.15 2 In
Bruun the Court found realization despite the absence of the severance which
it had considered determinative in Macomber, looking to the more subtle
change in legal relationship rather than the more crass severance. Similarly,
in Cottage Savings v. Commissioner the Court found that a taxpayer who
exchanged a pool of mortgages with a fair market value of $4.5 million for
another pool with the identical fair market value had a realization event
despite the equivalence of the market values because the underlying
mortgages in each pool were different.15 3 In the Court's view the difference
in the identity of the properties and obligors in the underlying mortgages
sufficed to create realization.15 4

Realization has all of the hallmarks of an apt concept. It provides a
rule in an area of public law and it is an on/off switch which tracks an
identifiable event. The rule is easy to apply in most situations, and those in
which it is not tend to be relatively few. In realization the vectors of
important tax values point in the same direction. The vector of equity,
treating similarly situated taxpayers similarly, is satisfied because all
taxpayers who experience a change in their legal relationships with property
will have realization events. The vector of efficiency, having the tax system
interfere as little as possible with what taxpayers feel it is economically
favorable to do, is satisfied because tax consequences are determined by
reference to the change in legal relationships, which has economic
significance in most cases. The vector of administrability points to
realization because the occurrence of an event makes the definition
administrable insofar as the event can be identified.

The wrinkle in this analysis is that the change in legal relationships
is not the only occurrence that has economic significance. The increase or
decrease in value has economic significance as well, and that is one reason
Cottage Savings has been controversial.155 Arguably, a system in which

152. Although the enactment of § 109 changes the specific result reached in
Bruun, it does not affect the validity of the holding on the realization question or its
effect on other fact patterns not covered by § 109.

153. Cottage Savings v. Comm'r, 499 U.S. 554 (1991).
154. As the Court explained, "[b]ecause the participation interests

exchanged by Cottage Savings and the other S & L's derived from loans that were
made to different obligors and secured by different homes, the exchanged interests
did embody legally distinct entitlements. Consequently, we conclude that Cottage
Savings realized its losses at the point of the exchange." Id. at 566.

155. The absence of a change in economic position has led many to regard
Cottage Savings as a tax shelter case. See, e.g., David Weisbach, Business Purpose,
Economic Substance, and Corporate Tax Shelters: The Failure of Disclosure as an
Approach to Shelters, 54 SMU L. REv. 73, 75 (2001); Joseph Bankman, The
Economic Substance Doctrine, 74 S. CAL. L. REv. 5 (2000). Indeed, taxpayers often

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taxation followed fluctuations in market values would be more equitable and
efficient than one which requires realization, as all taxpayers with equivalent

changes in their wealth would be treated alike. An accrual (non-realization
based) system would also be less susceptible to manipulation through the
creation of events with legal but little economic significance and would
therefore be more efficient than a realization based system.1 57 But, as we
have seen, it would also be nearly impossible to administer. Factoring in the
change in values makes the equity and efficiency vectors favor accrual rather
than realization but causes significant administrability problems in many
cases. The administrability vector therefore points in favor of realization
(rather than accrual) and in this case its strength is determinative because an
unadministrable tax system is no tax system at all. The strength of
administrability therefore suffices to overcome the strength of the values of
equity and efficiency.

Over seventy years earlier the Court grappled with these clashing
values when it embraced the concept of realization by failing to find that it
existed. In Macomber a majority of the Court, over the vigorous dissent of
Justice Brandeis (as well as a less vigorous dissent by Justice Holmes), held
that a pro-rata stock dividend was not income because any increase in the
value of the taxpayer's capital (the underlying stock) represented by the
issuance of the stock dividend had not be severed from the capital. In
requiring severance before being willing to find that receiving the additional
shares of stock created income, the Court allowed administrability to
moderate the pull of equity and efficiency, for equity and efficiency are
precisely what the taxpayer, and Justice Brandeis in dissent, championed.158

cite Cottage Savings in support of their position in corporate tax shelter cases. See,
e.g., ACM Pship v. Comm'r, 157 F.3d 231, 251 (3d Cir. 1998).

156. Jeffrey Kwall, When Should Asset Appreciation Be Taxed?; The Case
for a Disposition Standard of Realization, 86 INDIANA L. REv. 77 (2011); Clarissa
Potter, Mark-To-Market Taxation as The Way to Save The Income Tax-A Former
Administrator's View, 33 VAL. U. L. REV. 897 (1999); David A. Weisbach, A Partial
Mark-to-Market Tax System, 53 TAX L. REv. 95, 103-05 (1999); Daniel Halperin,
Saving the Income Tax: An Agenda for Research, 77 TAX NOTES 967 (1997); Fred B.
Brown, "Complete" Accrual Taxation, 33 SAN DIEGO L. REV. 1559 (1996); Reed
Shuldiner, A General Approach to the Taxation ofFinancial Instruments, 71 TEX. L.
REv. 243 (1992); Jeff Strnad, Periodicity and Accretion Taxation: Norms and
Implementation, 99 YALE L.J. 1817, 1879 (1990); David Shakow, Taxation without
Realization: A Proposal for Accrual Taxation, 134 U. PA. L. REv. 1111 (1986).

157. The Code requires mark-to-market (accrual) taxation in a few situation
in which it is feasible, such as in the case of certain financial instruments, as
described in § 1256. See generally Henry Ordower, Revisiting Realization: Accretion
Taxation, The Constitution, Macomber, and Mark to Market, 13 VA. TAX. REV. 1
(1993).

158. The two values converge in this case, as they do in many cases.
Treating economically similarly situated taxpayers similarly is equitable, and making

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Although the government lost both Macomber and Cottage Savings,
the allure of grounding decisions on changes in economic relationships-
economic substance-has remained strong.15 9 We think that the Glenshaw
Glass definition of income has endured because it is grounded in economics;
it is nearly coextensive with the Haig-Simons definition. The question we
must now answer is whether the Glenshaw Glass definition of income is apt.

C. Aptness and Glenshaw Glass

Preliminary analysis would suggest that the answer to that question
is yes. The definition of income in the tax law is a part of public law, and a
public law of intended application to the entire population. In such cases
definitions ought generally to be promulgated as rules to maximize
administrability, and the Glenshaw Glass definition looks like a rule. It has
the on/off quality of rules. Applying the Glenshaw Glass definition, a
taxpayer either has a clearly realized accession under her dominion or she
does not. Defining income should be like turning on a light-the light is
either on or off. But that binary paradigm is illusory. The Glenshaw Glass
definition of income has the appearance of a rule but is actually a standard.

As interpreted and administered by the IRS, the definition of income
is a standard because it does not operate like an on-off switch. As we
demonstrated in Part I, there are numerous items that fit the Glenshaw Glass
definition of income and are not excluded by statute but which are
nevertheless not income that is taxed. The reason for this is not that the IRS
is lawlessly refusing to follow the dictates of Glenshaw Glass; the reason is
that Glenshaw Glass does not indicate what metrics ought to be applied in
making the determination of what is and what is not within the definition.
That is, Glenshaw Glass fails to specify what counts as an "accession to
wealth." Does psychic wealth count? On the one hand, much of the market
value of Mark McGwire's seventieth home run ball derives from the psychic
benefits its ownership can provide; on the other hand, a foul ball hit by a
taxpayer's favorite baseball player might hold as much or more psychic
value for her as the more famous record-breaking ball. Is that taxpayer's
increase in psychic wealth income when she catches her favorite player's
foul ball? The answer is no, but not because Glenshaw Glass explicitly says
that an accession is not to be determined by a psychic metric. We do, in

economic position, rather than form, determinative makes it futile for taxpayers to
engage in transactions purely for formalistic reasons, which is efficient.

159. Most recently Congress codified the economic substance doctrine, to
the dismay of much of the tax bar. See generally Martin J. McMahon, Jr., Living
with the Codfied Economic Substance Doctrine, 128 TAx NOTEs 731 (2010).

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effect, tax psychic value when it can be translated into market value.16 0 When
the goals and values of income taxation are all taken into account, the
reasonable conclusion is that the kind of wealth we are concerned with in
taxation excludes psychic wealth, unless it enhances market value, just as it
excludes imputed income from services, the material support that parents
give to children, or, sensibly, welfare payments or education provided by the
government. These exclusions, resulting from an all-things-considered
understanding of the meaning of "accessions to wealth," are typical of how
standards operate.161

Recall that an apt definition reflects the goals and values of the field
and thereby generates predominately easy applications. Rules accomplish
this by privileging certain values over others. Standards, by contrast,
typically achieve aptness despite their all-things-considered approach
through widely shared consensus. An example is the standard of "reasonable
care" in the law of torts.

By contrast, we expect a standard lacking widely shared consensus
as to its applications to generate a large "borderland"-a predominance of
controversial cases. So is the Glenshaw Glass definition of income an apt
standard like reasonable care in torts? We conclude that the Glenshaw Glass
standard is apt, but for a surprising reason. Although there is probably wide
agreement with respect to whether some items, such as salary, are income,
there is wide disagreement generally as to many other items. The
disagreement is deep, ranging from fundamental issues, such as whether
capital gains should be income, to the more peripheral, such as the treatment
of caught record breaking baseballs. While positive law resolves the
disagreement in some cases, in part by providing a compromise, such as the
reduced rate of tax applicable to realized capital gains in the United States,
deep divisions remain. As Professor Bittker observed more than four decades
ago, "[w]hen we turn to the field of income taxation, however, we do not
begin with a consensus on the meaning of income, but with a myriad of
arguments about what should be taxed, when, and to whom." 62 The
arguments have not abated in the intervening years-if anything they are
now more intense.

The clash of values in taxation is so deep that it encompasses not
only what ought to be taxed but whether there ought to be a tax system at all
or, if so, how extensive it should be. Taxation not only played a pivotal (if

160. See William A. Klein, Timing in Personal Taxation, 6 J. LEGAL STUD.
461,479 (1977).

161. The transformation of the Glenshaw Glass rule-like definition into the
standard-like administered definition of income is neatly explained by Professor
Carol Rose's analysis of the rule-standard dialectic. Supra notes 135-37 and
accompanying text.

162. Bittker, CTB as Goal, supra note100, at 985.

340 [Vol. 11:5



Defining Income

symbolic) role in the founding of the United States, but debate about its role
and extent continues today and exposes deep divisions regarding values.
Issues of the reach of the tort law or some aspects of the criminal law are
debated in the context of the political debates that are part of the democratic
process, but it is difficult to say that any other area of law is as visible a part
of political debate at the highest levels as the tax system. Presidential
candidates are rarely asked about their positions on matters of torts,
contracts, or property, and with respect to criminal law they may be asked
about the death penalty. But a Presidential candidate without a position on
taxes is unimaginable. The candidates are almost certain to differ, and differ
substantially. That those differences constitute a central part of their
platforms illustrates the deep societal divisions on taxation. If there is little
agreement on whether we should be taxed and the extent to which we should
be taxed, it is hardly surprising that there will be little agreement on what the
tax base should be.

Even individuals who agree on the essential need for taxation will
differ on what ought to be subject to tax, and those differences are not only
deep but are often unexplored. Tax may be different from other areas of the
law in at least two ways. First, self interest can affect tax values in ways that
are less evident in other areas of law. Ex ante, an individual might not know
what kind of contract or tort rules she might favor because she would not
know whether she would be likely to be a breaching promissor or a
disappointed promisee, or the driver of the vehicle or the pedestrian who was
hit. In tax, however, self interest will almost always move an individual
toward a conclusion of no income. Sides are more easily taken, even in the
abstract.

Second, putting self-interest to one side, while socialization produces
in most individuals a shared morality and sense of right and wrong,
socialization does not typically produce in individuals a sense of what ought,
or ought not, be taxed. Those who teach tax know that until students take the
introductory income tax course, few have given much thought to the subject.
They may know that there is an obligation to pay tax, as do most people, but
like most people, they expect the tax law to consist of a set of mechanical
rules unmoored from values. Students expect that the subject will be
artificial, unlike, for example, constitutional law, which they know will
involve the clash of deeply felt values.

That perceived artificiality complicates the clash of values. People
who have not thought much about the values of equity and efficiency in
taxation but care about baseball may well think that a caught record breaking
baseball ought to bring nothing but joy to its catcher. There is almost
certainly a greater national consensus about baseball than about what ought
to be taxed and it is likely that most baseball fans would agree with former

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IRS Commissioner Rossotti that the lucky fan who catches the record
breaking ball deserves "a round of applause, not a tax bill."l 63

Commissioner Rossotti's account of his reaction to the caught
baseball tax controversy, which we discussed briefly in Part I.C, is worth
detailing because it illustrates perfectly the clash of values we have
identified. Commissioner Rossotti was the first Commissioner in a very long
time who was not a tax professional.16 He had founded and run a large
information technology corporation and was brought in to head the IRS at a
time when the agency was in great turmoil and the approach of Y2K raised
the specter of the possible collapse of its computer systems.165 That he was
not a lawyer, much less a tax lawyer, is important because it means he
brought to the position of Commissioner the reactions and sensibilities of a
member of the public, not of someone whose professional training began at
the knee of section 61 and Glenshaw Glass. In his reflections on his time as
Commissioner he recounted the events that began the baseball tax
controversy: a New York Times reporter asked "a hypothetical question
about gift tax due from a fan who might catch [Mark McGwire's] record
breaking baseball and give it back to McGwire.166 When an IRS
spokesperson answered the question by saying that tax would be due, a
firestorm of controversy erupted. As Rossotti explains,

More than innocent-spouse cases, more than small-business
owners losing their businesses, more than ITS modernization
failures, the prospect of the IRS taxing this hypothetical
good-hearted fan unleashed the fury of the American people,
not to mention their representatives in Congress. This was
what people thought of when they talked about a faceless
bureaucracy..16

The firestorm of controversy erupted because even if most people
had not thought much about what ought to be taxed, it seemed obvious to
them that a ball caught at a park should not be. In the words of White House
spokesman Mike McCurry, taxing the baseball was "about the dumbest thing
I've ever heard in my life." 68

It is telling that tax professionals, those who had been inculcated
with the structure that begins with section 61 and proceeds to Glenshaw

163. IR 98-56, 98 TNT 174-14. See Rossorri, supra note 92, at 223.
164. Ryan J. Donmoyer, Next IRS Commissioner Should be Outsider,

Grassley Says, 74 TAX NOTES 993 (1997); see, Unofficial Transcript of Finance
Hearing on IRS Commissioner-Nominee Rossotti, 77 TAX NOTES 583 (1997).

165. RossoTTI, supra note 92, at 1-25.
166. Id. at 94.
167. Id. at 95.
168. Id.

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Defining Income

Glass, were unanimous in their view that catching the baseball and keeping it
produces income.169 Commissioner Rossotti was fortunate in not having to
answer that question. The IRS Chief Counsel was able to respond to the
catch-and-return hypothetical by analogy to disclaimers and thus conclude
that there would be no tax.170 A subsequent IRS Chief Counsel, himself a
baseball fan, had no such easy out. When asked the income question directly,
he covered his head with his hands and declined to respond.171

Commissioner Rossotti is justifiably proud of his handling of the
situation, reporting that

The press grudgingly gave us credit for not being so
pinheaded after all. I was told one of the television
commentators read my quote "Sometimes pieces of the tax
code can be as hard to understand as the infield fly rule. All I
know is that the fan who gives back the home run ball
deserves a round of applause, not a big tax bill" to the
national audience at the beginning of the game in which
McGwire hit his sixty-second homer. By the skin of our
teeth, we had turned a potential public relations disaster into
something that made it seem as if real people worked at the
IRS, even people who knew what the infield fly rule was.172

Commissioner Rossotti's account of the IRS response to the controversy
captures the importance of the IRS's role in resolving clashes of values in
defining income. It is significant that, in Commissioner Rossotti's words,
"real people work at the IRS."

Commissioner Rossotti's reaction to the baseball controversy
illustrates another way in which values clash over what should be taxed-the
clash between tax professionals and the tax laity. There was unanimity of
opinion on the part of tax professionals, for whom it was clear that the
baseball was income when caught, but members of the general public,
including members of Congress and the IRS Commissioner himself (who as
a non-tax professional had not been privy to the inculcation of values that
begins when a student takes her first tax course), considered such a result
preposterous. As the casebooks and other student materials show, the study
of tax begins with what is income, and that in turn begins with Haig-Simons
and leads directly to section 61 and Glenshaw Glass. 1 Tax students are

169. Zelenak & McMahon, supra note 5, at 1300.
170. Rossorri, supra note 92, at 95; IR 98-56, supra note 163.
171. Herman, supra note 93, at Dl.
172. RossorrI, supra note 92, at 95.
173. See supra notes 5-6 and accompanying text; see also casebooks cited

supra note 9.

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taught that the definition of income is rooted in Haig-Simons and that tax
should follow economics, in large part because doing so will effectuate the
core values of equity and efficiency. The approach does not admit other,
non-economic values, and that sets up an inevitable clash between the views
of the professionals, who have absorbed this training, and the laity, which
has not.

Practicing tax lawyers may not consciously experience the full force
of the clash because their duty to represent their client's interest will usually
cause them to want to find no income and they will attribute any IRS desire
to find income to rapaciousness born of the duty to collect revenue. Law
trains us to think in adversarial terms. But tax lawyers who work for the IRS,
particularly those in its Office of Chief Counsel, have a more difficult task.
Those tax lawyers would probably agree that equity and efficiency point
toward taxing the value of the baseball (because it is an accession to wealth
clearly realized within the taxpayer's dominion if she keeps it), and the Chief
Counsel who covered his head with his hands and pleaded not be asked the
question probably reflects that. 174 But as lawyers working for the IRS they
understand the difficulty of administering such a conclusion, not only
because of the difficulty of valuation but also because it necessarily implies
taxing all caught baseballs, including those of relatively little value. Such a
result, while equitable and efficient,' 75 is unadministrable, not only because
people would rebel but also because it would be impossible for the IRS to
enforce it. Administrability encompasses non-economic values, which affect
the IRS's ability to enforce the law, as well. Equity, efficiency, and
administrability thus clash in this case as they do in those involving free
samples, because the free sample of shampoo mailed to an individual's house
is logically indistinguishable from the one included in the Oscar swag bag. A
rule based on administrability could be an invitation to circumvention] and
would lack the flexibility to address similar but unforeseen iterations of the
same issue by weighing non-economic values that affect public perception
and enforceability. In the case of income, a standard is therefore most apt.17 7

174. See supra note 93 and accompanying text.
175. It is efficient because it doesn't privilege one type of accession over

another and hence does not induce taxpayers to engage in a particular type of
behavior over another.

176. Rules can invite behavior that might be regarded as circumvention
because they create bright lines that allow taxpayers to choose whether to go to, but
not over, the line, or to cross the line. See, e.g., Granite Trust Co. v. United States,
238 F.2d 670 (1st Cir. 1956); Rev. Rul. 78-285, 1978-2 C.B. 287. This is not a new
problem, and it is one that may be informed by the concept of aptness that we have
tried to develop here, but further discussion of it is beyond the scope of this first
attempt.

177. Treasury has used rules effectively when its overriding objective has
been to promote administrability. Two prominent examples are implementing the

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Defining Income

But if we cannot rely on a shared consensus regarding tax values to
render the Glenshaw Glass standard apt, what is the substitute? The answer
is ad hoc intervention by the IRS. The IRS has specified on a case-by-case
basis what counts as an accession to wealth for purposes of income taxation,
and it has generally done so in a manner that respects the values of equity
and efficiency, along with the equally important value of administrability.
The Glenshaw Glass standard will produce the right result in those cases
where the values align, so salary will be income because treating it as such
promotes both equity and efficiency and is highly administrable. But in cases
where the values point in different directions, such as the case of the client
who is taken to lunch by her lawyer, the IRS can weigh equity and
efficiency, both of which would point to income, but allow administrability
to outweigh them, leaving itself open to argue income when it senses abuse,
either because the value of the lunch is excessive or because it suspects some
non-business motivation on the part of the lawyer. Moreover, with a standard
the IRS can take into account non-economic values that are not central to tax
law but emerge as important in specific situations-like reverence for the
game of baseball. 78

The use of a standard, as exists in the administered definition of
income, respects equity and efficiency. At the same time, the standard allows
for the crucial value of administrability by giving the agency charged with
administering the tax law, the IRS, the ability to weigh the relative values,
including non-economic values, and make decisions that reflect current
circumstances. The very cloudiness of the definition thus becomes its
strength. It was Justice Benjamin Cardozo, writing for a unanimous Court
trying to define "ordinary and necessary" in Welch v. Helvering,179 who
perhaps captured the wisdom of the structure: "The standard set up by the
statute is not a rule of law; it is rather a way of life. Life in all its fullness
must supply the answer to the riddle."8 o

Supreme Court's decision in INDOPCO, Inc. v. Comm'r, 503 U.S. 79 (1991), by
issuing regulations that contained numerous safe harbors and de minimis rules,
Treas. Reg. § 1.263(a), and making entity classification elective in many cases
through the promulgation of the check-the-box regulations, Treas. Reg. § 301.7701-
3.

178. In his 1992 H.L.A. Hart lecture at Oxford University, Professor Tony
Honor6 offered a political justification for substituting the will of officials for social
consensus in defining our legal obligations. Tony Honor6, The Dependence of
Morality on Law, 13 OxFORD J. LEGAL STUD. 1 (1993).

179. Welch v. Helvering, 290 U.S. 111 (1933).
180. Id. at 115. The deep irony of our conclusion does not escape us. Not

only do we know that the Welch opinion is not generally regarded with admiration
by tax lawyers and scholars, but for decades at least one of us shared the deep
derision in which it is held. See, e.g., Joel S. Newman, The Story of Welch: The Use
(and Misuse) of the "Ordinary and Necessary" Test for Deducting Business

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What we propose, that the definition of income be acknowledged to
be a standard that should be interpreted in light of the values-including
noneconomic values-that animate the field of income taxation, may sound
heretical or even incoherent to the contemporary scholarly ear, but it is not
revolutionary when viewed in historical context. It has a long and
distinguished pedigree that dates to the period shortly before the Court's
decision in Glenshaw Glass and that was contained in scholarship that was
cited by the Government to the Court in that case.181

Professors Surrey and Warren understood that even the Macomber
formulation was "a generalization rather than a definition"' 82 that failed to
answer questions such as whether the "act of picking up found money [was]
'labor"'"83 which would be captured by the Macomber formulation of income
as "gain derived from capital, from labor, or from both combined." 84 They
acknowledged that the Haig-Simons definition was too broad to be
administrable and concluded instead that

the concept of income is a flexible one, with the result in a
particular case being determined by the interplay of common
usage, accounting concepts, administrative goals, and finally
judicial reaction to these forces. Each force and judicial
reaction in turn reflects an underlying judgment as to what
types of receipts should be subject to a tax imposed on

)1185"income.

They advocated "a simple reference to 'all gains, profits, and
income,"" 86 because they "believed that this combination of wide

Expenses, in TAX STORIES 197, 205 (2d ed. 2009) (characterizing what Justice
Cardozo was doing as "whining"). Although we agree with Professor Newman that
the opinion "long ago should have been consigned to the judicial scrap heap" for its
extreme obfuscation of the capitalization doctrine, which should have served as the
sole basis for deciding the case, id, at 223, we are constrained to conclude that
despite the "archaic, verbose style," id. (quoting Brady Coleman, Lord Denning &
Justice Cardozo: The Judge as Poet-Philosopher, 32 RUTGERS L.J. 485 (2001)), and
the charge that Justice Cardozo "sometimes substitutes rhetorical flourish for
analysis," William Powers, Jr., Thaumatrope, 77 TEX. L. REV. 1319 (1999) (quoted
in Newman, supra, at 223), Justice Cardozo nevertheless captured the tension and
the clash of values it has taken us an entire article to untangle. That deserves some
credit.

181. See supra notes 36-46 and accompanying text.
182. Surrey & Warren, supra note 2, at 770.
183. Id.
184. Eisner v. Macomber, 252 U.S. 189, 207 (1920).
185. Surrey & Warren, supra note 2, at 771.
186. Id.

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Defining Income

inclusiveness and elasticity" offered "reasonable certainty for almost all of
the area and a workable standard for the application of judicial and
administrative common sense in dealing with the infrequent but intriguing
problems at the periphery."187 After reviewing some of what were then novel
questions, such as whether the recovery of damages for insider trading under
section 16(b) of the Securities Exchange Act were income, they explained
that

[t]he question is thus whether it is more sensible to have
these unforeseen borderline questions depend upon the
construction of the phrase "gains, profits, and income" or
upon a judicial dissection of various subsidiary items of
income. It is likely that the former would produce a more
satisfactory and coherent result, since the court's attention
would be focused directly on the basic issue of the
desirability of including these borderline items within a
statute taxing "income."

In the income tax, as in other complex legislation, the need
is for a standard which will project our present aims into the
future and serve as the vehicle for solving the unforeseen
cases as they arise. The legislative function is not denied or
thwarted when other branches of the Government are relied
upon by Congress to perform substantial tasks in the
application of statutes. Administration and judicial
interpretation are necessary parts of the overall process of
legislation. The income tax is no exception."'

We couldn't agree more.
Because the Surrey and Warren article was cited in the

Government's brief in Glenshaw Glass and because its discussion of the
definition of income implicated precisely the issue facing the Court-
expansion of the Macomber definition-and was prominent, having been
placed at the very beginning of the piece, we believe that it is likely that the
Court considered it, and took it to heart in the formulation it adopted in that
case.'8 9 We think that history has proven Professors Surrey and Warren, and
later Bittker, right. While a definition of income that is acknowledged to be a
standard does not fit the desire for technical precision that seems to be the
hallmark of so much tax legislation, it is not for that reason inapt.

187. Id. at 772.
188. Id. at 773-75.
189. See supra text accompanying notes 43-46.

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Acknowledging that the Glenshaw Glass formulation is not a rule but a
standard will not land the tax system in a quagmire but will instead, like
Professor Bittker's rejection of the CTB as a goal of tax reform, allow a
deliberate examination of whether a particular item ought to be included in
the tax base.

IV. CONCLUSION

In law, as in baseball, there are rules and there are standards. The
infield fly rule is a rule, but the strike zone is a standard. In law, apparently
crystalline rules can turn into muddy standards as they are applied to
situations in which competing values clash. The Glenshaw Glass definition
of income may seem to provide a rule, but it is actually a standard, and the
IRS is its umpire. Unlike the umpire, the IRS generally does not have the last
word. However, the IRS does call the balls and strikes within the zone. In
doing so it weighs numbers of factors and tries to reach the right result: a tax
system that is equitable, efficient, and administrable. By exploring the IRS's
role in defining income and by dissecting the factors that make it so difficult
to articulate a clear, precise, and accurate definition of the income that is
taxed, we have tried to illuminate the penumbral area where income becomes
no-income. In that area, economics are important, but non-economic values
also count. Economics is not everything.

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