Question

Which of the following are true of the wherewithal to pay concept? If an individual or...

Which of the following are true of the wherewithal to pay concept?

If an individual or business has a negative net worth for a year or more, they do not have the wherewithal to pay
If an individual or business files bankruptcy, they do not have the wherewithal to pay
If an asset appreciates in value but has not been sold, the individual or business does not have the wherewithal to pay
All of the above

Homework Answers

Answer #1

All the three options for the above questions were true.

The wherewithal to pay concept can be defined as that the concept recognizes the inequity of taxing a transaction when the taxpayer lacks the means with which to pay the tax, referring to situations where the taxpayer's economic position has not changed significantly as a result of the transaction. Basically, taxes should be recognized when the taxes can actually be paid. A taxpayer has the best wherewithal topay taxes when income is realized, which is usually directly after a sale transaction, because that is when the taxpayer actually has the cash available.

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