The Conners had leased a house nearby while their home was being rebuilt. The IRS said that's taxable income. It said all income is taxable unless specifically excluded, and the Conners haven't proved the reimbursement is excluded. The couple's reimbursements were receipts - not necessarily income. Income includes receipts from rent, interest, royalties, dividends, alimony, compensation for services, profits from business activity, gains from dealing in property, etc.
Courts continue to search for the definition of income.
Following the Supreme Court rule, the Conners' court said the reimbursement did not increase net worth. The money merely replaced what they paid so there was no wealth increase - so no income. And without income, it ruled, there was no income tax. The definition of income should now be clear thanks to this case and the prior Supreme Court ruling, but it isn't. The Conners' case doesn't mean all reimbursements are tax exempt.