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According to the Supreme Court, would it be good tax policy to use income tax as computed by financial accounting principles as the correct measure of income for Federal income tax purposes? Explain.
Expert Answer
Answer :- No.
Explanation :- In Thor Power Tool Company V. Commissioner (1979), The Supreme Court held that the objectives of taxation and financial accounting are different. For the federal income tax purposes, Internal revenue service (IRS) regulations will supersede the financial accounting principles. The taxable income calculated as per Internal revenue service (IRS) regulations will prevail over the taxable income calculated by taxpayer according to financial accounting principles.
Accordingly, as per the Superme Court judgement in Thor Power Tool Company V. Commissioner (1979), it is not at all advisable to use / apply the income tax calculated as per the financial accounting principles as an appropriate measure of income for the Federal income tax purpose.
