Chartered Retirement Planning Counselor (CRPC) Practice Exam

The cash equivalency doctrine addresses the tax treatment of unearned income by allowing certain non-cash benefits, such as securities or property, to be treated as if they were cash for tax purposes. This means that if a taxpayer receives income in forms other than cash, the value of those assets is assessed for tax liability as if they had received cash. This doctrine ensures that all forms of income are taxed equivalently, preventing taxpayers from avoiding tax liabilities by receiving payment in non-cash forms. This concept is crucial in understanding how the IRS views various forms of income, ensuring equity in taxation. It reflects the principle that taxpayers should not be able to defer or reduce their tax burdens simply by opting for non-cash transactions over cash payment. As such, the cash equivalency doctrine prominently applies to unearned income sources, such as dividends, interest, or gifts, which may be received in various non-cash forms.