One reason that tax accounting rules differ from generally accepted accounting principles is that:
A) Taxpayers often tend to overstate income, and companies tend to understate income when reporting to shareholders.
B) Taxes are rarely disputed, so there is less need for verifiability in tax rules.
C) The tax code tries to follow the economic substance of transactions, but generally accepted accounting principles focus on their legal form.
D) Congress has decided that some actions should not be rewarded by tax deductions, even though they may meet the accounting definition of expenses.

Question

Quizplus · Accepted Answer

The tax code and generally accepted accounting principles (GAAP) have different objectives, leading to differences in how transactions are recorded and reported. One key reason for these differences is that Congress has determined certain expenses, though they may qualify as expenses under accounting definitions, should not be eligible for tax deductions. This is part of broader efforts to guide business practices, encourage certain activities, and discourage others through the tax code.

One Reason That Tax Accounting Rules Differ from Generally Accepted