New-York tribune., 1919-01-19


T}1tst Compony, Of Ne10 York
W eectivs ai for 1918 "'i" the pro. pro-
posed provisions in the reve-
nue. bill relating to losses are Of es-
pecial Importance in determining tho
net income upon which income and cx-
cess profits taxes must be paid.
Changes in business conditions since
the signing of the armistice have had
a tendency to considerably affect the
apparently large profits for 1918, and
in the final summing up Of the bust
ness for last year it IS not improbable
that heavy taxes viii be assessed on
large profits, which may prove TO be
fictitious, rather than on the actual
profits of the business. This is espe-
ciaNy true in the case of manufacture
ers and merchants, who have on hand
large stocks Of merchandise and ma
terial or who have been so situated
that they have suffered by reason of
cancellations of contracts entered into
during the war.
Under the Federal income tax law
manufacturers and merchants are re
quired to report their gross income,
taking as a basis the inventory Of their
merchandise and material on hand,
valued at cost or at market value,
whichever is lower. Ordinarily this
method of taking inventory is sound.
At present, however, the prices Of
many classes of materials and mer-
chandise are inflated, and many manu-
facturers and merchants are confronted
with the probability of an early drop
in the values The loss resulting may
reduce materially the apparent profits
for 1918
Take for example wool on hand De-
cembcr 81. The value as fixed by the
government auctions or the cost of the
wool, whichever is lower, taken at the
end of the taxable year of the business,
must be used as the basis Of the inven-
tory. At the present time there is no
free market for wool, the minimum
prices being fixed by the government
auctions, and it is believed that, should
this restriction be released and I'M
portation from Argentina be permitted,
the price Of wool would be reduced ma
terially. In other words, the value OF
the inventory of wool on hand Decem-
Der 81 is fictitious, because Of the re-
strctons on importation and OF the
fixed minimum price. The Senate bill
proposes to take care Of such losses by
providing that losses sustained during
the preceding taxable year due to
shrinkage in the value of inventories
or other cause, hut ascertaned for the
first time during the taxable year 1918
or 1920, shall de deducted from the net
income Of the preceding taxable year,
the tax for such year predetermined.
and any amount collected in excess Of
the amount shown due refunded.
The foregoing is only one Of the
classes of losses which business is fac
ing. Other losses are yeasonably sure
to affect what have seemed in many
'-i7 sst AlCt9 ~ Dt iHi s,c piJlito turing lIc
preceding year. 1t is well known that
soon after the war many contracts
which had been made on war basis
for furnishing manufactured prod
ucts Of different classes have been
cancelled. This leaves in the hands
of the manufacturer materials which
have been purchased at war prices
and on which, if used in the
ful6lment Of contracts made on an
after-the-war basis, the manufacturer
VIII be compelled to suffer consider
able loss. Cancellations Of this char
actcr have extended to a number Of
different classes Of business, and with
out the benefit Of the above provision
of the law the high rate of excess
profits tax in 1918 on fictitious profits
would result in many manufacturers
suffering q net los on their total busi-
ness