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 |
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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