Tax Law and Accounting
The inception of tax law has been revolutionizing revenue production since the
congregation of society. As the tax law transitioned from antiquated statutes to modern
statutes, the underlying objectives began to expand as well. Tax law originally configured
for the sole purpose of revenue gain implemented non-revenue objectives in an effort to
address issues related to such areas as the economy, society, and politics, to name a few. In
addition, such mandates were made applicable to individuals, as well as corporations. As a
result, differences between Generally Accepted Accounting Principles (GAAP) mandated
by the Financial Accounting Standards Board (FASB), and the guidelines required in
adherence to tax accounting required adjustment for compliance.
Sources of Modern Income Tax Statutes
Modern income tax statutes resulted from the early efforts of the United States government
to help pay for the American Civil War by the imposition of the first personal income tax.
The attempt was imposed on August 5, 1861 under the Revenue Act of 1861, which taxed
3 percent of all incomes over $800. However, such taxation was rescinded in 1872. Several
other attempts at income taxation followed; although the United States Supreme Court
made an 1895 ruling with regard to Pollock versus Farmers Loan and Trust Company,
which held that taxes placed on capital gains, dividends, interest, and rents must be
apportioned as direct taxes on property. The effect of such apportionment resulted in the
prohibition of federal tax on property income received (Income Tax in the United States,
2006).
Political difficulties pertaining to the taxation of individual wages without taxation from
property income caused the imposition of federal tax to be viewed as impractical until the
1913 ratification of the Sixteenth Amendment proposed by Congress. Simply stated, the
amendment was not an expansion of the government existing taxing authority, but rather
the removal of any apportionment of income tax requirement (Income Tax in the United
States, 2006).
The modern interpretation of the Sixteenth Amendment defined income as relating to the
imposition of income tax by Congress as:
gains, profits, and income derived from salaries, wages, or compensation for personal
service of whatever kind and in whatever form paid, or from professions, vocations, trades,
business, 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 the transaction of any business carried on for gain or profit, or
