The internal revenue code (26 U.S.C.) contains many references to the term "trade or business" in its provisions. This is a coded phrase, not merely a conjunctive term equivalent to "a trade or a business", but one of special application. Look at the definitions of "trade" and "business" from Black's Law Dictionary, and contrast them to that for "trade or business". A "trade or business" is for profit (as opposed to livelihood) and conducted by a taxpayer, being a person (which was already and previously) subject to internal revenue tax:

Taxpayer - 26 USC ¤ 7701 (14)

The term "taxpayer" means any person subject to any internal revenue tax.

One does not become a taxpayer by merely working in a trade or in a business; one must have been a taxpayer already who then started a trade or a business which the internal revenue code then terms a "trade or business" for the purposes of taxing the "taxpayer". Remember that government is (supposedly) taxing privileges.

Notice that "trade or business" includes the performance of a public office. What else fits the description of "trade or business"? First look at the definition of "includes":

Include - Black's 6^th

To confine within, hold as in an enclosure, take in, attain, shut up, contain, enclose, comprise, comprehend, embrace, involve. Term may, according to context, express an enlargement and have the meaning of and or in addition to, or merely specify a particular thing already included within general words theretofore used. "Including" within statute is interpreted as a word of enlargement or of illustrative application as well as a word of limitation.

Includes & including - 26 USC ¤ 7701 (c)

The terms "includes" and "including" when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined.

For income tax withholding, "employees" are government officers and employees, but officers of corporations are also included. This puts corporate officers in the same category as government employees and officers. Both types are enjoying privileges afforded by government, are they not? Likewise, a "trade or business", in including those performing the functions of a public office let's us know that a trade or business must be a privilege of some sort, and other "trade or business" activities are probably the exercise of corporate privilege in nature.

Note, the definition of "taxpayer" is seen in section 6331 of the internal revenue code by comparing who can be levied (in subsection (a)) to the continuing levy made on the taxpayer (in subsection (e)).  A taxpayer is seen to be an employee or elected official of government.

26 USC Sec. 6331. Levy and distraint
(a) Authority of Secretary
If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. Levy may be made upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official. * * *
(e) Continuing levy on salary and wages
The effect of a levy on salary or wages payable to or received by a taxpayer shall be continuous from the date such levy is first made until such levy is released under section 6343.

So simply having a business does not make one liable for paying income tax or withholding. The internal revenue code sections taxing a "trade or business" applies to those exercising a privilege afforded by government, i.e. government employment (employees and officers) and corporate officers. There are other sections of the internal revenue code which address trades and businesses not a "trade or business"; I believe these sections are addressing taxing powers granted by the Constitution of the United States, rather than "internal" taxes.

Lastly, look at the definition of "trade or business" from the District of Columbia Revenue Act of 1939. This narrows the scope of trades and businesses under the internal revenue code to those situated in the District of Columbia.

Definitions

Business - Black's 6^th

Employment, occupation, profession, or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage, or livelihood. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. That which habitually busies or occupies or engages the time, attention, labor, and effort of persons as a principal serious concern or interest or for livelihood or profit.

Trade - Black's 6^th

The act or the business of buying and selling for money; traffic; barter. [* * * ] An occupation or regular means of livelihood; the business one practices or the work in which one engages regularly. One's calling; occupation, gainful employment, means of livelihood.

Trade or business - District of Columbia Revenue Act of 1939 (53 Stat. 1085, 1106)

The words "trade or business" include the engaging in or carrying on of any trade, business, profession, vocation or calling, or commercial activity in the District of Columbia; and include the performance of the functions of a public office.

Trade or business - Black's 6th

Any business or professional activity conducted by a taxpayer, the objective of which is to earn a profit. General test for determining whether person is engaged in "trade or business" so as to be entitled to deduct expenses as trade or business expenses under Internal Revenue Code is whether taxpayer's primary purpose and intention in engaging in the activity is to make a profit.

Trade or business - 26 USC ¤ 7701 (26)

The term "trade or business" includes the performance of the functions of a public office.

Some quotes from Merten's Law of Federal Taxation - 1995

Deductible or Capitalizable Business Expenses, Sec. 25.06:

Factors used in determining if a taxpayer is engaged in carrying on a trade or business include but are not limited to:

1. the existence of a profit motive;
2. whether an activity is strictly for personal investments; and
3. whether expenses are for resuming or expanding an existing business or preparation of a new business.

Whether a taxpayer's activities are sufficiently substantial and regular to constitute a trade or business is a factual determination. * * *

Examples in Trade or Business

Every person who works for compensation is engaged in a trade or business and expenses which are essential to the continuance of the employment are deductible. Being in an executive office of a corporation constitutes being engaged in a trade or business.
A taxpayer who is a partner in a business is individually engaged i business. No distinction is made in this connection between ordinary and limited partnerships.

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