The Ever-relevant Debate surrounding Income Realization

Abstract

Realization can be regarded as one of the most stable attributes of income tax. It represents the moment when, for tax purposes, an increase in wealth is deemed to have occurred. Over the years, especially abroad, studies advocating for the instrumental nature of realization have gained in importance. In general terms, the persistent presence of realization in income tax legislation would have its origin in practical obstacles that would prevent the taxation of income according to value fluctuations, such as liquidity and valuation challenges. In this regard, there is a constant tension between the (practical) necessity of realization and the (material) need to overcome it. In current times, this tension has intensified. The alleged resolution of practical obstacles, coupled with the pursuit of broader tax bases, has reignited debates about the (in)appropriateness of realization as an attribute of income. This essay examines the current state of this debate and the necessity of grounding the income tax base on legal criteria.