FORMS: 9.7 DETERMINING TAXABLE INCOME
RIGHT click here for the Word 97 version of this document

Useful handout for IRS personnel during an examination that shows how to compute taxable income.


Determining Taxable Income

"Determination of taxable income. The taxpayer's taxable income from sources within or without the United States will be determined under the rules of Secs. 1.861-8 through 1.861-14T for determining taxable income from sources within the United States." [26 C.F.R. 1.863-1(c)]

"Rules are prescribed for determination of gross income and taxable income derived from sources within and without the United States... 1.861-1 through 1.864. (Secs. 861-864; ’54 Code.)" [Treasury Decision 6258]

"Sections 861(b) and 863(a) state in general terms how to determine taxable income of a taxpayer from sources within the United States after gross income from sources within the United States has been determined." [26 CFR 1.861-8]

"The taxable income from sources within the United States… shall be determined by deducting therefrom, in accordance with sections 861(b) and 863(a), [allowable deductions]. See Secs. 1.861-8 and 1.863-1." [26 C.F.R. 1.861-1]

"Sec. 1.861-8 [is the section] for determining the taxable income from sources within the United States." [26 C.F.R. 1.862-1]

"Secs. 1.861-1 to 1.863-5 [give the principles] for determining the gross and the taxable income from sources within and without the United States." [26 C.F.R. 1.863-6]

26 USC 861(b) is entitled "Taxable income from sources within the United States," and the corresponding regulations in 26 C.F.R. 1.861-8 are entitled "Computation of taxable income from sources within the United States *and from other sources and activities." (The portion of the title after the asterisk was added in 1978.)