For PIT purposes, are federal income tax principles “acceptable by standards of the accounting profession” ?

Jan 22, 2018
Q:

For PIT purposes, are federal income tax principles “acceptable by standards of the accounting profession” ?

If the answer to that question is affirmative, please explain why a taxpayer that follows federal income tax principles for accounting purposes is not permitted to make elections like IRC secs. 734, 743, 745, 754 and 1031 for PIT purposes. The DOR has not adopted regulations prohibiting the application of these sections.

A:

The federal income tax method of accounting is not an accepted accounting principle and practice under PA law and regulations. It allows taxpayers to invoke various non-recognition and deferral principles that do not clearly reflect income. It is not an accepted accounting method that clearly reflects income, as required by PA law and regulations. As noted in a recent BF&R opinion (Docket 1624564), even if the federal income tax method of accounting was an accepted accounting principle and practice under PA law and regulations, various Pennsylvania case law acts to prohibit its use for PIT purposes.
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Disclaimer:
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.