ABSTRACT
Every few years, an outcry arises over the fact that large companies report billions of dollars of income on their financial statements yet pay little or nothing in taxes. The need for a tax-specific income definition and accounting system can also be seen in the early history of the income tax, in which tax authorities struggled to differentiate tax accounting rules from the trust and financial accounting rules that had been imported into the tax laws. Early tax authorities borrowed heavily from other accounting systems, including trust and financial accounting. The British income tax was based on the notion that those with a greater ability to pay should pay more to support government. Tax accounting has capitalization and depreciation rules similar to financial accounting. Capital expenditures should not lead to current deductions because they do not reflect consumption or a decrease in wealth.
