Great Falls tribune. [volume] (Great Falls, Mont.) 1921-current, 1921-12-19
new REVENUE
ACT SAME ON
INVENTORIES
Business Men Need Experience
No Difficulty in Figuring
Income Tax, Says Collector.

"Merchants, manufacturers an d
business men generally need exper-
fence no difficulty in taking their in
ventories for the year 1921 to conform
with the new revenue act" says james
A. Walsh, collector of internal revenue:
The language Of the revenue act OF
1921 and the revenue act Of 1918 re-
lating to inventories are IDENTICAL, he
continues. They are:
"'That whenever in the opinion OF
the commissioner the use OF inventor
les is necessary in order clearly TO
determine the income OF any toxpayer,
inventories shall be taken by such tax
payer upon such basis as the COM
missioner, with the approval of the
secretary, may prescribe as conform
ing as nearly as may be TO the best
accounting practice in the trade or
business and as most clearly reflect
ing the income.
present treasury regulations pro.
vide that Inventories must be valued
at either cost or market, whichever is
lower says the collector. Taxpayers
were permitted, regardless Of their
past practice, to adopt the cost or mar
ket basis. whichever is lower in TAX
ing their inventories for 1920. There
after. the regulations provide. changes
can be made only after permission is
obtained from the commissioner of in
ternal revenue.
What Cost Means.
"In the case of a merchant cost
means the invoice price less trade or
other discounts, excepting strictly
cash discount approximating fair rate
of interest, which may be deducted or
not at the option Of the taxpayer, pro-
viding d consistent course is followed.
To the net invoice price should be
added the cost Of transportation and
other necessary charges incurred IN
acquiring possession Of the goods.
"In the case of manufacturer
cost means the cost Of raw materials
and supplies, expenditures for labor
and indirect costs incident to produc-
ton, including a reasonable proportion
of management expenses, but not in
GLIDING any cost Of selling or securing
return on capital.
Market means the current bid
price prevailing at the date of the In
ventory for the particular merchandise.
The burden Of proof as to the correct
ness Of the price rests upon the tax
payer in each case. Where no open
market quotations are available, the
taxpayer must use such evidence Of a
fair market price at the dates nearest
the inventory as may be available, such
as specific transactions or compensa-
ton paid for cancellation of contracts
or purchase commitm Where. be-
cause of abnormal conditions the tax
payer has regularly sold merchandise
at prices lower than the market bid
price, the inventory may be valued at
such prices.
Value OF Each Item.
1.-THE correctness Of such prices will
be determined by reference to the ac-
tual sales Of the taxpayer for a. reas-
enable period before and after the
date OF inventory. Prices which vary
materially from the actual prices 50
ascertained will not be accepted as re-
flecting the market.
'The value of each item in the in
ventory may be measured by the cost
or market, whichever is lower. An
entire stock may not be inventoried at
cost and also at market price, and the
lower Of the two inventories used. In
ventories on whatever basis taken will
be subject to investigation by the com
missioner Of internal revenue, and the
taxpayer must satisfy the commits
sioner Of the correctness Of the price
adopted. He must be prepared to
show both the cost and the market
price Of each article included in the
inventory.
TN the conduct Of modern business.
it is of the utmost Importance that
every business, large or small, whether
corporation. partnership or individual.
shall maintain an exact record Of re-
ceipts and expenses No special sys-
tenn of accounts is prescribed by the
bureau of internal revenue. But the
books should show in detail inventor
les, purchases, sales, capital invest
ments. depreciation and similar item
required in making up income tax re-
-