In the United States
, income recognized
is income taxed. Naturally this is not a matter of individual
preference. Income is "recognized" according to a complex system of rules.
Note that this does not always mean that one has money in hand. A simple example will suffice. Suppose that I have borrowed $100,000 from an unrelated party. The loan in itself is not a taxable event on either side. But let us suppose further that the party from whom I borrowed the money forgives the debt. Now I am $100,000 richer, and the next question is, why?
If the money is really a gift, why, then the giver is required to file a gift tax return, and further, to pay tax on the transfer (or to count it against his or her lifetime exemption). But if this is not a gift, then I must include this accession to wealth in my income tax return.
I have realized income; I must now recognize it.