It is a familiar feature of our system of taxation that tax rates be graduated in proportion with the ability of the taxpayer to pay. As income rises, the percentage of tax is increased by the so-called surtax. For the taxpayer with approximately the same income, year after year, an annual imposition of tax according to these rates is equable; but unlucky is the individual who has high income one year and low income the next, for he must pay a substantial amount of tax over and above that which he would have had to pay had his income been level throughout the years, due to the surtaxes in the years of high income. The present Internal Revenue Code contains several provisions which in some measure alleviate this heavier burden on the individual with the fluctuating income. Substantially, however, the present law has been wrought upon the theory that it "is the essence of any system of taxation that it should produce revenue ascertainable, and payable to the government, at regular intervals." Thus, at the end of each calendar or fiscal year, the taxpayer must pay a tax based on only the profits and losses of that year, necessitating the use of the yearly accounting system, unless he comes within one of the special provisions. The "back-pay" section, the provisions allowing a "carry-back" and "carry-over" of losses incurred in a trade or business, and the "installment sales" provisions may be cited as examples of the present day allowance of proration of income over several years' time; but these apply only in specific situations and are hedged around with so many conditions that few can take advantage of them. These scattered provisions have apparently been the result of a rather obviously unequal tax burden in certain situtions, and consequently have been limited in scope; and they have also been the subject, in most cases, of a narrow construction by the courts and by the commissioner. It is proposed herein to examine what can and, if possible, what should be done to ease the burden still applicable to the greater number of taxpayers with fluctuating incomes.
Clyde R. Maxwell, Jr.,
Averaging Fluctuating Income of the Individual for Income Tax Purposes,
20 Wash. L. Rev. & St. B.J.
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