Let me give this a try. It is not the easiest and clearest legislation out there.
On Feb 14, 2012, the congress PASSED Public Law 112-95. ( https://www.congress.gov/112/plaws/publ95/PLAW-112publ95.pdf ) You often see it it referred to on this board as the FAA Modernization and Reform Act. This is the legislation that bars the FAA from passing regulations that affect model aircraft. It also sets up the ability for the FAA to regulate any drone not flown as model aircraft. That is the portion referred to as Part 107. Part 107 requires you to pass a test to operate under it's domain. If you make money with your flying, you are under part 107. If you do so without passing the test, it is similar to driving your Ferrari without a license. You can be charged for any traffic violation you commit, as well as driving without a license. Just because you don't have a driver's license doesn't mean you can't be charged for speeding. Simple enough.
In Public Law 112-95, is where you see Section 336, Special Rule for Model Aircraft.
https://drones.princeton.edu/sites/drones/files/sec-336.pdf
Section 336 is the part which restricts the FAA from controlling model aircraft such as our drones. It does so with this statement:
"Administrator of the Federal Aviation Administration may not promulgate any rule or regulation regarding a model aircraft, or an aircraft being developed as a model aircraft, if--".
Pay very close attention to that last two letter word. "if". This is where most people stop reading when they have posted what you have come to think of as the whole story. But the "if" makes all the difference in the world to you and I and our Mavics.
When you get to the last section of Sec 336, is the catcher. Paragraph (C) defines what a model aircraft is. And remember, the only way to avoid the restrictions of Part 107 is to fly a model aircraft. I will copy paragraph (c) since it is so short.
"(c) Model Aircraft Defined.--In this section, the term ``model aircraft'' means an unmanned aircraft that is--
(1) capable of sustained flight in the atmosphere;
(2) flown within visual line of sight of the person operating the aircraft; and
(3) flown for hobby or recreational purposes.
By definition of the law, if you do not fly within visual line of sight, you are not flying a Model aircraft. Only model aircraft tare exempted from FAA. If you fly beyond VLOS, you are subject to the FAA regs, and you already have two violations; flying beyond VLOS, and operating under Part 107 without a license.
Do people break this law with impunity? According to this board, some surely do. In fact, I do not know of any board on the web where so many people publicly brag about how they break the law so regularly. You would think that, with the poor public image which our hobby suffers, people would zip it when it comes to such public bragging about purposely and frequently breaking the law. How difficult do you think it would be for congress to change that legislation in a way that would really hurt the hobby?
I hope I presented this is a way that makes it clear. If you have any questions, feel free to PM me, or reply here. I encourage you tp read the whole of Sec 336. It is quite short. That also has the part about the community based set of safety guidelines, of which the AMA seems to be the only one to use.
You bring up a very good point there - I'd completely forgotten that Public Law 112-95, Section 336 (c) (2) included that explicit definition of model aircraft. That did not make it into 14 CFR 101, but still holds, and is a more definitive statement than the guideline in the AMA Safety Code. It unambiguously requires VLOS in order to be covered by Part 101.