Tax Law and Accounting

Tax Law and Accounting

Defining the objectives of modern income statues, comparison and contrast of General Acceptance Accounting Principles (GAAP) and tax accounting, and differencing of tax avoidance and tax evasion will be the topic of this paper. Controversy of the tax law between accounting and GAAP, understanding these general practices will give a better knowledge of the accounting tax laws and principles.

Defining the objectives of modern income tax statues, six main categories of the government's primary objective of the federal income tax law is to raise revenues for the government economically and socially is: revenue needs, economic effects, social control, justice, administration, and tax consciousness. Majority of government expenses are covered through taxation. The sixteenth amendment in 1913 stated that Congress had the power to collect taxes on income from any source without regards to where income was derived. The modern income tax statutes are to improve the fairness of the federal income tax system, by removing inequalities.

Comparing and contrasting the GAAP and tax accounting, the GAAP consists of the sources of accounting principles, standards and procedures.

The Internal Revenue Code (IRC), Title 26 of the United States Code (26 U.S.C.), the IRC is complex. tax law, passed by Congress, is the recording, analyzing, interpretation and reporting of financial transactions for complying with tax laws and minimizing tax expenditures.

According to Brinker Jr., T., (2005), "Both the courts and IRS have established that

compliance with GAAP is frequently of little significance, especially where GAAP are

inconsistent with the objectives of tax accounting."

The difference in GAAP and tax accounting is revenue and expenses, in GAAP revenues are recognized before receipt, whereas, tax accounting are revenues and expenditures recognized only after they have been realized. Depreciation methods, GAAP does not allow the adjustment of fixed assets such as real estate, this would cause overstating of assets value.

Differentiate between tax avoidance and tax evasion, tax avoidance is planned strategy to take all lawful measures to minimize or pay the least amount of tax as possible. Tax evasion is the illegal practice with the intention to deliberately avoid paying taxes. Al Capone is an example of someone who deliberately dedicated his business operation in the early 1920s to 1931 in Chicago, by smuggling and bootlegging liquor, and other illegal activities, he was sentenced to federal prison, for tax evasion. "The issues of tax avoidance and tax evasion are becoming increasingly more important. The General Accounting