Document Type
Article
Publication Date
2022
Abstract
Since its introduction in 1913, the federal income tax has viewed income expansively, subjecting virtually all types of enrichment as gross income unless Congress explicitly exempted the income from taxation. But in the income tax’s second decade, the Bureau of Internal Revenue created an exception to the broad reach, an exception not grounded in any type of Congressional enactment. The Bureau’s practice of excluding certain benefits began innocuously in the late 1930s by excluding certain social security benefits from gross income. Over the decades, the IRS has used what it now refers to as the “general welfare exclusion” to exclude from gross income everything from subsistence benefits to payments made to preserve historic buildings. Confronted with difficult questions surrounding poverty and ability to pay, the general welfare exclusion has provided a way for the IRS to resolve complex and unanticipated questions about whether certain government welfare benefits constitute gross income.
The general welfare exclusion, however, relies upon an enigmatic foundation of administrative rulings and decisions completely unhooked from any statutory authority or direction. While this administratively-created general welfare exclusion is broad and affects tens of millions of taxpayers, it nonetheless has been largely overlooked by taxpayers, tax scholars, and even legislators.
This Article does three things. First, it comprehensively traces the development and evolution of the general welfare exclusion. Second, it highlights the problems created by the ad hoc nature and lack of tether to any legislative authority. Third, it provides a path by which the general welfare exclusion can continue to benefit low-income taxpayers while reducing the complexity and overreach of the IRS.
Recommended Citation
Samuel D. Brunson & Christian A. Johnson, Good Intentions: Administrative Fiat and the General Welfare Exclusion, 100 Wash. U. L. Rev. 1411 (2023).