Understanding the Federal Income Taxation

Federal Income Taxation HW#4
Name Course Instructor Date
Chapter 4
Please answer the following questions at the end of Chapter 4:1, 2, 4, 7, 13, 15, and 18.1 According to the Supreme Court, would it be good tax policy to use income as computed by financial accounting principles as the correct measure of income for Federal income tax purposes? Explain
Income is taxed when realized, but realization does not require a cash receipt (Maloney et al., 2021). In the case, Thor Power Tool Co. v. Comm., the court held that IRS regulations that limited writing down inventory was correct. The judges highlighted that financial information is useful to users of the financial information, and financial information is necessary to estimate and give reasonable certainties.
2 Compare and contrast the economist's concept used to recognize income with the concept employed in measuring taxable income.
Economists measure economic income by determining an individual's net assets' fair market value at the beginning and end of the year. This represents the change in net worth. To determine the economic income, the change in net worth is added to the goods and services consumed within the specified period. This also includes the value for home-occupied homes. The accounting concept of income is based on the realization principle, where accounting income is not recognized until it is realized. This implies that revenue is recognized when the goods associated with the revenue are delivered or services are rendered in exchange for goods or services to take place. Assets capable of being valued are exchanged for there to be realized.
4 Ben lost his job when his employer moved its plant. During the year, he collected unemployment benefits for three months, a total of $1,800. While he was waiting to hear from prospective employers, he painted his house. If Ben had paid someone else to paint his house, the cost would have been $3,000. The cost of the paint Ben used was $800. What is Ben's gross income for tax purposes from the above events?
Ben must recognize $1,800 of income from the unemployment benefits. Ben's savings from painting his house are not included in gross income, and this was not income realized because the savings were not an amount received.
7 LO.2 What is the purpose of the constructive receipt doctrine?
"Under the cash receipts method, income is recognized in the year of actual or constructive receipt by the taxpayer or the taxpayer's agent, regardless of whether the income was earned in that year" (Maloney et al., 2021). The doctrine applies to cash-based taxpayers and provides that an unrestricted right to receive income is treated the same as actually receiving it....