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Historical Perspectives on the Federal Income Tax

1939: The Internal Revenue Code

and the Public Salary Tax Act

"The Internal Revenue Code, approved February 10, 1939, and published in the volume as Public Act No. 1 of the Seventy-sixth Congress, is the first Federal act of its kind since the Revised Statutes of the United States, approved June 22, 1874. Title XXXV of the Revised Statutes embraces the general and permanent statutes relating exclusively to internal revenue, in force on December 1, 1873.

The internal revenue title, which comprises all of the Code except the preliminary sections relating to its enactment, is intended to contain all the United States statutes of a general and permanent nature relating exclusively to internal revenue, in force on January 2, 1939; also such of the temporary statutes of that description as related to taxes the occasion of which may arise after the enactment of the Code. These statutes are codified without substantive change and with only such change of form as is required by arrangement and consolidation. The title contains no provision, except for effective date, not derived from a law approved prior to January 3, 1939. …"

The purpose for the Internal Revenue Code of 1939 was to consolidate all of the various laws relating to tax revenue into one concise document. These laws were scattered over 34 volumes and 65 years of legislation. Prior to 1939 it was necessary to research through all 34 volumes to establish the exact nature of the law in question, now one volume contained it all. Case in point; the Social Security and Unemployment Taxes were levied under Title 42 of the United States Code, this consolidation then moved that tax structure into the Internal Revenue Code under Title 26. The I.R.C. made no changes to any of the existing laws, except those necessary to consolidate and codify them into one place, in order to facilitate the determination of legal questions.

The Code of Federal Regulation (CFR) Title 26 "Income Tax Regulation", in effect from 1939 to 1953, under section 39.21-1 and 39.22 (a)-1 defined the then accepted definition of income as it applied to the current tax system. Section 39.21-1 is titled "Meaning of net income" and, in part, says:

"(a) The tax imposed by chapter 1 is upon income. Neither income exempted by statute or fundamental law, nor expenses incurred in connection therewith, other than interest, enter into the computation of net income as defined by section 21. …

    1. Income (in the broad sense) meaning all wealth which flows in to the taxpayer other than as a mere return of capital. It includes the forms of income specifically described as gains and profits, including gains derived from the sale or other distribution of capital assets. …"

Section 39.22 (a)-1 is named "What included in gross income" and reads, in part:

    1. Gross income includes, in general, compensation for personal and professional services, business income, profits from sales of and dealings in property, interest, rent, dividends, and gains, profits, and income derived from any source whatever, unless exempt by law. See sections 22(b) and 116. In general, income is the gain derived from capital, from labor, or from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets."

Unfortunately they neglected to define what they meant by the reference to the fundamental law and exempted income. However, the rest of the definition certainly indicated that unless it qualified as "gains and profits", it was not to be included for tax purposes.

Congressional Record, Volume 84:

Part 15, INDEX: "Internal Revenue Laws and Taxes", page 291

Part 15, INDEX: House Bills—2746-2782, H.R. 2762

Part 1, pages: 646-48, 780-89, 1056-57

House Report Number 6, January 20, 1939

Senate Report Number 20, Serial Set No. 10292, January 30, 1939

Statutes at Large, Volume 53, Part 1, Internal Revenue Code of 1939


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