The Washington herald., 1920-12-31
INVENTORY VALUE
Loss ALLOWED IN
new TAX RULING
Returns May Be Made on
Lower of Market or
Cost Prices.
APPLIES TO 1920
Decision of Treasurer Said
To Conform to
Policy.
APPLIES TO 1920

The fall Of prices throughout the
past year was recognized and q
saving of hundreds of millions of
dollars. IL Is estimated, effected for
the business taxpayer in an internal
revenue decided approved yester-
day by Secretary of the Treasury
Houston. The decision will permit
income tax returns for the year
1890 to include inventory returns
based on cost or market prices"
whichever is the lower, without the
specific permission heretofore re-
auired. thus admitting the effect Of
declining prices on inventories has
resulted in a loss to net income or
profits The decision was in line
with the original purpose Of the
Internal revenue act. though il was
not realized at the time of passage
pf the act that a situation as severe
bs the present one would take
place.
The action Of the Secretary was
aken in a cryptic, technical amend
nent to the income tax regulations
providing that a taxpayer may, re-
kardless of his past practice. adopt
he basis of cost or market, which
ever is lower for his 1920 inven-
-ory, provided a disclosure of the
act and that 1t represents a change
ire made in the return"
Permission Needed Heretofore.
Heretofore this permission was
granted only under extenuating
circumstances and upon application
where II was found cost valuation
was unfair and injurious to the tax
payer. The regulation further pro-
sides that after the taxpayer has
indicated the basis of valuation he
intends to use changes can be made
pnly after permission is secured
rom the Commissioner"
In a supplemented and explana-
tory decision also approved il is
provided that the term market"
means the current bid prices of the
goods being inventoried and that
this method of valuation may be
applied "(a) to goods purchased and
on hand, (b) to the basic elements
of cost in goods in the process of
manufacture. (materials. labor and
burden), and (c) to finished goods
on hand: exclusive. however, of
goods on hand or in process of
manufacture for delivery upon firm
sales contracts at fixed prices ent-
cred into before the date of the in
ventory. which goods must be in
ventoried at cost"
Fixes Inventory Values
The supplemental decision pro-
Vides that goods in process of man
ufacture may be valued for the
purposes of the inventory on "the
lowest Of the following bases: (1)
the replacement or reproduction
cost prevailing at the date of the
inventory; or (2) the proper pro-
portionate part of the actual fin
ished cost; or under abnormal con-
ditions, CD the proper proportion->
ate part of the sales prices of the
finished product. account being
taken in all cases of the proper
tionate part Of the total cost of
basic elements materials, labor
and burden), represented in such
goods in process of manufacture at
the stage at which they are found
on the date of Inventory
Warming the taxpayer that under
this privilege he must be pres
pared to both the cost and the
market price of each article in
cluded in the inventory" and satis-
fly the commissioner of the cor
rectness of the valuation placed on
them. The decision threatens the
usual penalties for fling false and
fraudulent returns against those
who seek to use the system of mar
ket valuation and show prices
varying materially from what evil
dence shows the market price to be.
Special provision is made for alb
normal cases of selling below
market cases where no open mar
ket quotations are available.
fp,kH. T.S~.r