Generally, income is included by recipient under §61 and deducted by business under §162.
Symmetry of tax treatment – amount can be income to taxpayer but not deductible by payor (baker includes receipts for bread in income but consumer doesn’t deduct cost, rent is income for lessor but nondeductible for lessee).
One source of this is capitalization requirement where payor cannot take full deduction right away. §§263 and 263A.
Another source of asymmetry when parties have different tax status (tax-exempt organizations or one party has losses to absorb income).
Consumption dollars taxed only once to a taxpayer but more than once as it changes hands – nondeductibility means dollar is taxed to person that receives and person that spends.
Government has time-value advantage from capitalization requirement.
Different tax rates for employer/employee affects how the fisc comes out.
§61 – Income –all compensation for services is income.