The Accounting Period in Federal Income Taxation

Abstract

tion of income tax policies very difficult. High income tax rates have recently focused our attention on the faults or defects that exist in accounting practice with respect to the existing criteria for the measurement of income for tax purposes. Our methods of measuring income on a yearly basis have in many instances been arbitrary and unfair. Recently much criticism has been directed at the effect of our income tax laws on business initiative and the methods used to compute taxable income derived from business operations. The provisions that have been most severely criticized are those dealing with the handling of operating losses, capital gains and losses, valuation of inventories, and allowances for depreciation and obsolescence. The Revenue Act of 1939 attempted to correct some of these defects particularly as they applied to corporations, in the hope that the changes would lead to an improvement in business conditions. The Revenue Act of 194o has not made any essential changes in the methods of determining income for tax purposes. It is not the purpose of this paper to explain fully the alleged defects of our present income tax program. Rather, its purpose is to show that the majority of these defects are the result of the confusion in our conception of income and our arbitrary use and