"Debate on the question of correlation between taxable income and financial income has run hot and heavy for many years," said Harold E. Arnett, Associate Professor of Accounting at the University of Michigan. This essay is going to summarize the sources of modern income tax statutes, summarize the objectives of modern income tax statutes and compare and contrast generally accepted accounting principles.
There are three sources of modern income tax statutes which are legislative, executive and judicial. In this paper only the legislative and executive will be discussed.
The Internal Revenue Code which comprises of statutory provisions relating to Federal taxation only existed as individual revenue acts before 1939. In 1939 Congress codified the Federal tax laws. This codification arranged all Federal tax provisions in a logical sequence and placed them in a separate part of the Federal statutes. Two more such rearrangements took place in 1954 and 1986. The Internal Revenue Code of 1986 is the latest which resulted in substantial changes, only a minority of the statutory provisions was affected.
Statutory amendments to the tax law are integrated into the Code. Examples include the Taxpayer Relief Act (TRA) of 1997, the Internal Revenue Service Restructuring and Reform Act of 1998 and American Jobs Creation Act of 2004 (Hoffman, pg 2-3).
The typical legislative process for tax bills by and large initiates in the House Ways and Means Committee in the House of Representatives. However, tax bills originating in the Senate are attached as riders to other legislative proposals. After both the House of Representatives and the Senate work out the differences in the Joint Conference Committee and is passed by the House and Senate, the tax bill then goes for approval or veto by the President. If the President approves or the President's veto is overridden, then the...