A landlord leases property upon which the tenant makes improvements.The improvements are significant and are not made in lieu of rent.At the end of the lease, the value of the improvements are not income to the landlord.This rule is an example of:
A)A clear reflection of income result.
B)The tax benefit rule.
C)The arm's length concept.
D)The wherewithal to pay concept.
E)None of these.

Question

Quizplus · Accepted Answer

The "wherewithal to pay" concept suggests that income should be recognized when the taxpayer has the means to pay the tax. In this case, the landlord does not have the means to pay tax on the improvements since they do not receive any cash or equivalent benefit at the end of the lease.

A Landlord Leases Property Upon Which the Tenant Makes Improvements