Section 61 of the Tax Code states that “except as otherwise provided in this subtitle gross income means all income from whatever source derived”. Thus, the federal tax law requires taxpayers to pay income taxes on earnings, commissions, rents, royalties, retirement benefits, investment profits, tips, fringe benefits, bonuses and almost anything else of value, unless the Internal Revenue Code specifically provides an exception to the general rule contained in §61. An exception to the general rule is §102 of the Internal Revenue Code.
Related Tax Rules or Regulations
Internal Revenue Code Section 61
Internal Revenue Code Section 280E
Prior to 1982, an illegal business was able to reduce its revenue by the cost of any product it sold (Cost of Goods Sold, or COGS), as well as other ordinary and necessary general and administrative (G&A) business expenses like rent, packaging, utilities, travel expenses, and even the cost of a small scale used to weigh the controlled substances sold by the taxpayer. In 1982, the IRS enacted Section 280E which dictated that businesses that trafficked in controlled substances, as defined by the Controlled Substance Act, could no longer deduct its expenses.