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Discussion
I. Introduction
The starting point in determining a taxpayer’s Federal
income tax liability for any taxable year is the computation of
gross income. The term “gross income” is defined in section 61.
Compensation for services is includable in gross income unless
excluded by law. See sec. 61(a)(1); sec. 1.61-2(a)(1), Income
Tax Regs. The parties have stipulated (and we have found
accordingly) that, during 2000, petitioner received $16,393 for
his services provided under a VA CWT program. Petitioner argues
that the receipt is excluded by law from his gross income because
it constitutes payment of a tax-exempt veterans’ benefit.
Respondent disagrees, arguing that it constitutes compensation
for petitioner’s services.
II. Bases of Parties’ Arguments
A. Petitioner’s Argument
Petitioner relies on 38 U.S.C. section 5301(a) (2000). As
stated, title 38 is concerned with veterans’ benefits. Section
5301 thereof is entitled “Nonassignability and exempt status of
benefits”. In pertinent part, 38 U.S.C. section 5301(a) (2000)
provides: “Payments of benefits due or to become due under any
law administered by the Secretary [of Veterans Affairs] * * *
made to, or on account of, a beneficiary shall be exempt from
taxation”. That exemption is cross-referenced in the Internal
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