Impact
To suggest that Congress could tax unrealized gain is not to suggest Congress intends to do so. The realization requirement is a pervasive, popularly supported aspect of our tax system, and there is no indication Congress is about to reverse course in this regard.
According to Burke and Friel, there are policy arguments to be made for and against taxing appreciation. If Congress did choose to tax appreciation, taxpayers' tax income would likely match their economic income; "it would thus tend to place on the same tax footing persons who are economically similarly situated." However, the current system allows the IRS a degree of "administrative convenience." Moreover, it is arguably unfair to treat unrealized gains as income where the taxpayer may not have the appropriate funds to cover the tax liability, presumably forcing the taxpayer to sell the asset in question simply to pay the tax resulting from it. In the end, economic gain will be taxed. "Realization is fundamentally a matter of timing . . . he unrealized total gain, of course, may fluctuate from time to time as the property's value changes, but that total will be treated as income only on realization. To describe realization as a matter of timing should, nonetheless, not be seen as a dismissive comment. In taxes, as in life, timing can be everything . . . ."
Read more about this topic: Amount Realized
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