Evening star., 1918-02-21
PROBLEM N COMPUTING
income AND EXCESS TAX
By I. A. FLEMING.

whether cost or market values shall
be used as the basis of the computation
OF incomes and excess profits taxes re-
turns by those whom the Treasury De-
part,nent recognizes as dealers In
securities is one Of the most important
problems of the day with dealers in
securities and bankers as well.
1t will be recalled that the income
tax law provided that losses on secnr-
fly holdings might not be computed
unless actual; that is, unless the shares
HAD been disposed of. and the loss sus-
tanned.
The great decline in securities In De-
cember was largely accredited to pur-
pose on the part Of holders OF securi-
ties to consummate the sale OF stocks
and take the loss, and the movement !
December 10. by the order OF the com
missioner Of internal revenue Ct D)
2609), providing that dealers in securi-
ties might. at their option, and without
completing the transaction so far as to
consummate a sale, take inventory at
either cost or market price.
AS prices were lower in December
than at practically any time In years. IL
was but natural that dealers should i'm
mediately select market value ana
make return thereon. although the
counsel of the Investment Bankers AS
sociation and some others warned
against doing this on the ground that
the advance in 1918 would. in all proba-
bility, be marked enough to make a
very large increase in values, with tne
result that dealers would be piling up
an Important tax on excess prohts IN
1918
Now comes the commissioner of inter
nal revenue with a warning to mer-
chants and to dealers in securities. IN
cluding bankers. that the ruling T. D.
2603. made December II, 1917, mas peen
questioned as to its legality. and the
matter has been referred to the Attor-
aeyxGeneral for an opinion
The Attorney General advises that
cases pending in the United States Su-
preme Court fully cover the case in
point and that an early decision may pc
expected. Pending this decision sched-
uIes filed under 2609 will be tenta-
lively accepted.
In fling schedules bankers. mer-
chants and dealers must state whether
inventories were made at cost or mar
ket value.
order s64e contains the following:
For the purpose T. D. 2609 and this
decision a dealer in securities is
merchant of securities, whether an in
dividuaI. partnership or corporation.
with an established place of business,
and whose principal business is the
purchase of securities and their resale
to customers; that is, one who as
merchant buys securities and sells
them to customers for gain and profits
that may be derived therefrom. Tax
payers who buy and hold or sell securi-
ties for investment and speculation
and not in the course of an established
business, officers of corporations and
members of partnerships who in their
capacity buy and sell securi-
tiea are not dealers in securities with
in the meaning of T. d. 2609, and in all
such cases inventories must be. taken
at cost and the gain or loss will be
taken into account IL the securities are
sold and the transactions close"
In the event of the ruling Of the At
torney General. following the courts
decision. being adverse to T. D. 260e,
amended returns will be asked of deal
ers who have used market value as the
basis.
The definition of dealer" would
seem to cut out brokers entirely from
the privilege of the ruling. also traders
even If they kept books, banks also,
and give the right only to investment
bankers who buy bonds for resale and
certain traders in stocks.