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satisfy the “business connection” requirement of section
62(a)(2)(A) and its 1939 Code predecessor, as that requirement
has been interpreted and continues to be applied.
Statutory Framework
Section 62 is entitled “Adjusted Gross Income Defined.”4
4The concept of “adjusted gross income” was introduced to
the Federal income tax by sec. 22(n) of the 1939 Code, enacted by
sec. 8(a) of the Individual Income Tax Act of 1944, ch. 210, 58
Stat. 235, as part of a package to increase revenues to finance
the war effort. The package included an increase in marginal
rates which reached their highest historical level with the 1944
Act; also between 1939 and 1945, the personal exemption was cut
in half, from $1,000 to $500, to extend the reach of the Federal
income tax to more taxpayers. The 1944 Act introduced the
concept of “adjusted gross income” to implement the newly created
standard deduction, which was designed to simplify the return-
filing process for the majority of new taxpayers and ease the
administrative burden of examining the resulting increased number
of tax returns.
The standard deduction simplified the process by providing
individuals the option of deducting a fixed statutory estimate of
their deductible nonbusiness expenses in lieu of itemizing each
expense they incurred. The concept of adjusted gross income was
incorporated into the Internal Revenue Code to provide, before
the deduction of nonbusiness expenses, an income base to which
the standard deduction would be applied. Adjusted gross income
is supposed to be a rough estimate of amounts that a taxpayer has
to pay for his nonbusiness expenses. When a taxpayer has
determined how much income is available for his nonbusiness
expenses, he may decide whether to account for his deductible
nonbusiness expenses by claiming the standard deduction or by
itemizing his expenses.
Under sec. 22(n)(1) of the 1939 Code and its successor in
subsequent Codes, sec. 62(a)(1), business owners, partners in
firms, and independent contractors could deduct all their
business expenses from gross income in arriving at adjusted gross
income without limitation and then either avail themselves of the
standard deduction or itemize their nonbusiness expenses. Under
sec. 22(n)(2) and (3) of the 1939 Code, as enacted by the 1944
(continued...)
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