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Tax Law and Accounting
ACC/483 Income Tax Accounting
Joshua Montgomery
5/19/2008
Tax Law and Accounting Paper
There has been some wide controversy within the accounting field between tax law and
accounting under the General Accepted Accounting principles, GAAP. The Internal
Revenue Service tax code does not always agree with the regulations published by the
GAAP. The IRS has published some of its own statutes that govern tax accounting and
laws. When studying tax law and how it applies to the accounting field there are many
areas that must be addressed. In this paper only three areas will be addressed. This paper
will address the modern income tax statutes and their objectives, comparing and
contrasting the GAAP and tax accounting, and finally how to differentiate between tax
avoidance and tax evasion.
The objectives of modern income tax statutes are to simplify the confusing language used
when the tax law was created in 1861, to help pay for the costs of the civil war, as part of
the Revenue Act of 1861. Over the years this has led to the creation of the Internal
Revenue Code of 1986. Over the current years the code has been amended multiple times
to include amendment 26 U.S.C 1. This amendment specifically deals with imposing
income tax on the taxable income of individuals, estates and trusts. The sixteenth
amendment of the United States Constitution covers the governments ability to tax
individuals income. The modern interpretation of this amendment comes from the court
case, Commissioner versus Glenshaw Glass Co. Wikipedia.org explains this case in the
following terms, "a taxpayer had receives an award of punitive damages from a competitor
for antitrust violations, and sought to avoid paying taxes on that award. The court observed
that Congress, in imposing the income tax, had defined gross income, under the Internal
Revenue Code of 1936, to include:
Gains, profits, and income derived from salaries, wages, or compensation for personal
service*ƒ²*ƒ"€š*ƒ‚¦of whatever kind and in whatever form paid, or from professions,
vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or
personal, growing out of the ownership or use of or interest in such property; also from
interest, rent, dividends, securities, or other transaction of any business carried on for gain
or profit, or gains or profits and income derived from any source whatever."“
(Wikipedia.org, 2008)
The plaintiff in this case lost because the court decided that even thought the definition of
Gross income has been simplified, but it had no effect on the intention of the statute. Some
