Question

Discuss the probable non-revenue justifications for each of the following aspects of the tax law. a. A tax credit is allowed for amounts spent to furnish care for minor children while the parent works.

b. Deductions for interest on home mortgage and property taxes on one’s personal residence.

c. The income-splitting benefits of filing a joint return.

d. Fines and penalties are not deductible.

e. Net operating losses of a current year can be carried back to profitable years.

f. A taxpayer who sells property on an installment basis can recognize gain on the sale over the period the payments are received.

g. The exclusion from Federal tax of certain interest income from state and local bonds.

h. Prepaid income is taxed to the recipient in the year it is received and not in the year it is earned.

Answer 1

a. Social considerations. A tax credit is often permitted for amounts spent to look certain minor or disabled dependents that would allow the taxpayer can seek or maintain gainful employment

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b. Social considerations. This deduction would be allowed for qualified residence and interest on acquisition indebtedness/ home equity loans.

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c. Equality considerations. When a married couple files jointly, they are allowed the tax liability to be as if one-half of the income being earned by each spouse and thus permits a lower rate when filing the taxes.

d. Social considerations. The losses in the gambling losses can be deducted up to the amount of the gambling gain

e. Social considerations. The Net operating loss procedure allows tax payer certain relief by permitting them to apply few or all of their current year loss to an early profitable year. It is considered in the Annual Accounting period Concept

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f. Wherewithal to pay concept. The taxpayer can defer recognition of the profit or gain of property sale until the amount is received actually thus the amount of gain on the installment payments can be spread over the complete period that the payments are received.

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g. Political considerations. The reason is that the special interest legislation is not required to be commended.

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h. Wherewithal to pay concept. Prepaid income is taxed to the recipient in the year it is received and not in the years when earned its justified under the legislative of special interest.