Question

IRC sec. 61 defines gross income as all income from whatever source derived including but not limited to the following items... Which of the following statements is not true?

A.	certain items are specifically excluded from income

B.	all of the above

C.	the courts have interpreted the statute to include constructive receipt of income

D.	the definition is broad enough to cover both cash and barter transactions

Answer 1

Answer: C

A. Section 61 of The Internal Revenue Code defines "gross income," for federal income tax purpose as "except as otherwise provided in this subtitle gross income means all income from whatever source derived".

The phrase "except as otherwise provided in this subtitle" generally refers to the items of income that are excluded from "gross income" under Internal Revenue Code sections 101 through 140.
For example, section 101 excludes certain life insurance proceeds received by reason of the death of the insured. section 102 excludes certain gifts and inheritances. section 103 excludes interest income on state and municipal bonds. section 104 excludes certain amounts received on account of injuries or sickness.
Hence those items are specifically excluded from income.

C. The Doctrine of Constructive receipt is a taxation principle that taxes income before that income is actually received. ... Income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions.

For federal Income tax purposes, the doctrine of constructive receipt is used to determine when a cash-basis taxpayer has received gross income. A taxpayer is subject to tax in the current year if he or she has unfettered control in determining when items of income will or should be paid.

Hence constructive receipt of income is not applicable for federal income tax, taxation will be based on cash.

D. Income from bartering is taxable in the year it is performed. The rules for reporting barter transactions may vary depending on which form of bartering takes place, ie, bartering assets and online bartering. The fair market value of the goods and services exchanged must be reported as income by both parties. Barter may take place on an informal one-on-one basis between individuals and businesses, or it can take place on a third party basis through a modern barter exchange company. Income from bartering is taxable in the year it is performed. The rules for reporting barter transactions may vary depending on which form of bartering takes place. Refer to Tax Responsibilities of Bartering Participants for more information about reporting income and staying in compliance.