We provide here a written summary of answers provided by the Department of Revenue to the committee at periodic question and answer sessions. These documents are classified as Revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on a specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.
Q&A with the Pennsylvania Department of Revenue
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.