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THE UNITED STATES TAX SYSTEM: AN OVERVIEWMany other items of compensation or gain can be identified within the sweepingdefinition of gross income. 4Defining and computing gross income is the initial step in the process ofcomputing and determining tax on income.§ 2.3 EXCLUSIONS FROM INCOMEDespite this expansive definition of gross income, Congress excluded certainitems from consideration as gross income. 5 Items specifically excluded fromgross income by statute are referred to as exclusions and are not included in arrivingat the total gross income figure, for tax purposes, for a taxpayer.Examples of exclusions include:• Accident and health plan proceeds• Contributions to capital• Disaster relief payments• Educational assistance programs• Employer-provided meals and lodging• Fringe benefits• Gifts and inheritances• Housing allowances for clergy• Interest on state and local bonds• Life insurance proceeds• Military allowances• Scholarships• Veterans’ benefits• Welfare and public assistance benefits• Workers’ compensation benefitsExcluding certain income items from the scope of gross income is the secondstep in computing and determining tax on income.§ 2.4 CONCEPT OF ADJUSTED GROSS INCOMEThe term adjusted gross income means gross income less certain expenses. 6 Thebusiness expense deductions discussed below are allowed as deductions fromgross income to arrive at adjusted gross income.Other items that involve subtraction from gross income to determineadjusted gross income include:• Alimony payments4 IRC §§ 71–90.5 IRC §§ 101–139A.6 IRC § 62(a). 30