This website uses cookies to ensure you have the best experience. Learn more

Irs And Tax Regulations Essay

2115 words - 8 pages

Companies have to file tax returns that are in accordance with tax regulations and rules developed by the Internal Revenue Service (IRS). The amounts reported under taxable income and financial income differs. These amounts are different because financial income is based on Generally Accepted Accounting Principles (GAAP) which uses the accrual method to report revenues. Taxable income on the other hand, which is determined by rules and regulations of the IRS, follow a modified cash basis to determine revenue. Therefore, it can be seen that these amounts differ because of the differences between tax regulations and GAAP.
The majorities of financial advisers do not have a formal accounting or tax background and thus have some challenges to overcome when reading tax returns of their clients. However they are still asked to help their clients in future planning. Since most accounting is to be done based on compliance with GAAP it would make sense to think that tax accounting should also be done this way, however both the IRS and the courts have stated that compliance with GAAP is of little significance when dealing with the objectives of tax accounting. The objectives of both accounting methods are simply different, because the primary goal of financial accounting is to provide useful information to all stakeholders and the primary goal of the income tax system is the equitable collection of revenue. Because of these differences it can be said that the users of accounting information are different for both methods. The assumption for financial accounting is the going-concern and the tax accounting system ignores this assumption. These differences give us the concept of timing differences and permanent differences. Understanding these differences is the goal of the financial advisor in the pursuit of their career, or at least it should be Brinker Jr., (2005).
These differences may cause variances between taxes payable and income tax expense. This difference occurs when there is a temporary difference between book and tax amounts. According to Kieso, Weygandt & Warfield “a temporary difference is the difference between the tax basis of an asset or liability and its reported (carrying or book) amount in the financial statements, which will result in taxable amounts or deductible amounts in future years. Taxable amounts increase taxable income in future years. Deductible amounts decrease taxable income in future years” (2012). Therefore, temporary differences are timing differences and will eventually be recognized both under GAAP and the IRS. Temporary differences include depreciation, prepaid expenses, unearned revenue, warranty liability/expense, contingency accruals, and accounts receivable/cash receipts. There are two consequences for temporary differences. One consequence is a deferred tax liability and the other is a deferred tax asset.
Currently deferred taxes are accounted for based on the asset-liability method and with the convergence...

Find Another Essay On IRS and Tax Regulations

Community Benefit Analysis

1720 words - 7 pages distinguishing factors of nonprofit hospitals is that they must be organized and operate in such a manner that promotes health while ensuring that no part of their net earnings benefit private individuals. (U.S. Government Accountability Office, 2008) All federally tax-exempt organizations are required to report their financial data annually to the IRS via Form 990. There are many schedules associated with Form 990, however the one specifically

Tax Strategy Essay

2814 words - 11 pages and major provisions for considering how to use them for planning the next year's tax strategy.An Overview of the new Tax Laws Rule of the Game--- Tax Laws Congress writes the tax laws, which become part of the Internal Revenue Code (IRC) or tax code for short. The tax code is amended every year. Congress has given the IRS the power to interpret the tax code through a series of IRS Regulations. These regulations are expanded versions of some, but

Tax Law and Accounting Paper

1306 words - 5 pages President. If the President approves or the President's veto is overridden, then the tax bill is incorporated into the code (Hoffman, pg 2-4). The Committee Reports from the House Ways and Means, Senate Finance and the Joint Conference Committee frequently explains or gives insight to the intent of Congress.The first administrative source of the tax law discussed is the Treasury Department Regulations. The regulations are issued by the U.S

History of Taxes in the United States

1740 words - 7 pages Where Taxes Come From There are four main sources of tax revenue in the United States. They are income tax, payroll tax, corporate tax, and “other” taxes. These taxes are collected by the Internal Revenue Service, or the IRS, which is a branch of the US Department of Treasury. The revenue generated from these taxes is used to fund government programs, both discretionary and mandatory. Income tax is a tax on the income from an individual

Service Learning project experience

972 words - 4 pages Prior to working on the service learning project, I had to pass the basic income tax course on the IRS website which required a lot of reading. I failed the first attempt so I had to re-read the basic tax course again. I finally passed and was ready for my experience in the service learning project I participate in the service learning project on March 3 and March 31. On March 3, I experience working on the service learning project for the

Smart phone Tax Application

2667 words - 11 pages brings together the most trusted information that provides expert research, news and guidance to customers in need of tax education updates. The company uses certified implementer program to train and support services for accounting and consulting firms. Problem Statement Ever changing technologies, services and regulations are making it increasingly difficult for service providers to comply with state and local taxes. With a variety of


1244 words - 5 pages . "President Lincoln and Congress created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses (Internal Revenue Service [IRS], n.d.)." This income tax was repealed in 1872; enacted again in 1894; then ruled unconstitutional by the Supreme Court in 1895. With the ratification of the 16th Amendment in 1913, Congress has the right to enact an income tax.In the 1950's, the name was changed to the Internal

Business in Ethics

624 words - 2 pages by the IRS and their clients are being sought after for back taxes, penalties, and interest.Ernst & Young is not alone in this scandal. According to the article, finding ways to avoid paying taxes is a new wave of scandal hitting the accounting business. There are many other major accounting firms, such as KPMG LLP and BDO Seidman LLP that are under attack by the IRS for their questionable tax practices. There are several ethics

How to Avoid a Tax Audit when Filing Taxes

715 words - 3 pages Most people dread the prospect of being audited by the Internal Revenue Service. Countless individuals will never be subjected to an IRS audit, but taking certain steps to avoid such an experience is not a bad idea. Those who seek to prevent an intensive examination of their financial records may wish to explore a few easy tips on how to avoid a tax audit. File Correctly and Completely One of the best ways to prevent an audit is to file taxes

The True Stories of Tax Cheaters

633 words - 3 pages Last week, we talked about the IRS Criminal Investigation unit, which just released their Fiscal 2012 report. That report was filled with the sort of dry statistics you would expect from an IRS annual report: 5,125 total investigations launched, 202 crooked tax preparers indicted, 199 identity thieves sent to prison, and 64 months average time behind bars for money launderers. But the report also includes dozens of stories of tax cheats who

The Regulations of Tax Laws

2033 words - 8 pages The Regulations of Tax Laws Introduction Tax laws rules and regulations change mostly every year and people in the business need to keep up with the fast pace of those

Similar Essays

Internal Revenue Service(Irs) Targets The Tea Party

660 words - 3 pages In 2013, the IRS got audited and it wasn't pretty. In 2013, the Internal Revenue Service (IRS) admitted that it had inappropriately targeted and scrutinized political groups applying for tax-exempt status. At first it was reported that the agency had only targeted conservative groups, including groups with "Tea Party" in its name. However, it was later revealed that some liberal groups, such as those associated with the Occupy Wall Street

Tax Shelters Essay

1358 words - 5 pages Reporting and Compliance"). Furthermore, same or significantly similar transactions that IRS has determined to carry a tax avoidance flavor must be identified via notice (7). In light of the recent Federal regulations, promoters have to "register confidential corporate tax shelters, material advisors have to maintain and furnish information, including names of investors, concerning sales and transfersin potentially abusive tax shelters," and

Auditing And Appeals Paper

562 words - 2 pages the IRS, and also may elect to have the right to get help resolution assistance from the National Taxpayer Advocate's Problem Resolution Help Line.If a person disagrees with the tax amount the IRS claims he or she owes or he or she is dissatisfied with the actions the IRS is taking to resolve the case; he or she has the right to ask the Appeals Office or to have a court review the case. The taxpayer also has the right to mediation services. To

America's Tax System: Flat Or Fair?

877 words - 4 pages brackets. Many say that it violates our constitutional rights through unequal taxation. Multiple deductions, loopholes, special rates, and a complex system of regulations all characterize our Federal Income Tax System, prompting many to question why it is still being used (Peters, 2013). The current system although bringing in over $3 trillion, taxes income multiple times, and includes the taxing of estate, labor, savings, and investments (National