PRINCIPLES AND RULES OF INCOME DETERMINATION FROM THE ASPECT OF U.S. TAXATION

There is great diversity in the concept of “income” among accountants, economists and taxation authorities; furthermore, even within each of these groups there is a definite lack of unanimity. In the determination of income for purposes of U.S. taxation, however, certain principles and rules are codified in taxing statutes or embodied in administrative pronouncements or judicial determinations. The more important of these will be summarized and considered herein. (The volume and complexity of the U.S. tax rules obviously prevents any attempt at completeness.) Conceptual departures from current accounting and economic philosophies will be discussed. Two major limitations in scope should be noted at the outset. First, although income taxes constitute a major source of revenue for the majority of the fifty states and for certain municipalities, consideration will be limited to principles and rules of income determination for federal income tax purposes. Second, although there are, in general, four distinct classes of tax entities, viz., corpora tions, partnerships, individuals and fiduciaries, each governed by special rules, only those pertaining to corporations and individuals will be specifically discussed. However, certain basic principles are applicable to all classes.