Which accounting system follows IRS regulations for determining tax liabilities?

Tax accounting is the system that specifically follows IRS regulations for determining tax liabilities. This accounting method focuses on the rules outlined by the Internal Revenue Service (IRS) for preparing tax returns and complying with tax laws. It involves the recognition of income, deductions, and credits that are permissible under tax regulations, ensuring that individuals and businesses report their income accurately and pay the appropriate taxes.

In tax accounting, various principles and regulations govern how financial events are recorded and reported, leading to the calculation of taxable income. This system is crucial for individuals and entities to maintain compliance with tax obligations, avoid penalties, and take advantage of any tax benefits or strategies allowed under the law.

In contrast, financial accounting adheres to generally accepted accounting principles (GAAP), aimed primarily at providing information to external parties rather than focusing on tax liabilities. Government accounting is tailored for public sector entities, emphasizing compliance with legal and regulatory requirements pertinent to governmental operations. Statutory accounting is concerned with the financial reporting for insurance companies and is designed to ensure that they maintain adequate reserves and meet state regulations, rather than focusing specifically on tax matters.