The Winslow mail., 1921-01-21
MERCHANTS, ATTENTION

Relative to Inventories Clears
up Important Points.
II. d. 3108 amends Regulation 45
Article 1882 as follows:
Valuation of inventories: Inven-
tories must be valued at (a) cost or
(b) cost or market, as defined in Ar
ticle 1884 as amended, whichever is
lower (See Article 1885 for Inven-
tories by dealers in securities.)
Whichever basis is adopted must be
applied consistently TO the entire in
ventory. A taxpayer may, regardless
of his past practice, adopt the basis
of "cost or market whichever is low
er" for his 1920 inventory, provided
disclosure of the fact and that he
represents change are made in the
return. Thereafter changes can be
made only after permission is Sc
cured from the Commissioner. In
ventories should be recorded in a
legible manner, properly computed
and summarized, and should be pre-
served as part of the accounting
records of the taxpayer. Goods taken
in the inventory which have been so
intermingled that they cannot be
identified with specific invoices will
be deemed to be the goods most re-
Gently purchased.
T. D. 31O9 amends Article 1854 and
T. D. BOAT as follows:
Inventories at Market: Under or
binary circumstances, market ;"
means the current bid price prevail
ing at he date of the inventory for
the particular merchandise in the
volume in which ordinarily purchas-
ed by the taxpayer. This method OF
valuation is applicable in the basis
(a) of goods purchased and on hand,
(b) of basic elements of cost (mater-
ials, labor and burden) in goods in
process of manufactue, and Co if
finished goods On hand; exclusive,
however of goods on hand or in pro-
cess of manufacture for delivery up
on firm sales contracts at fixed
prices entered into before the date
of the inventory, which goods must
be inventoried at cost. Where no
open market costs are available, the
taxpayer must use such evidence OF
a fair market price at the date or
dates nearest the inventory as may
be available, such as specific trans
actions in reasonable volume entered
into in good faith, or compensation
paid for cancellation of contracts for
purchase commitments. Where, ow-
ing to abnormal conditions, the tax
payer has regularly sold such mer-
chandise at prices lower than the cur
rent bid price as above defined, the
inventory may be valued at such
price, and the correctness of such
prices will be determined by refer
ence to the actual sales of the tax
paer for a reasonable period before
and after the date Of the inventory
Prices which vary materially from
the actual prices SO ascertained will
not be accepted as rejecting the mar
ket and the penalties prescribed for
filing false and fraudulent returns may
be asserted. Goods in process OF
manufacture may be valued for pur-
poses of the inventory on the lowest
of the following basis G) the re-
placement or reproduction cost pre-
vailing at the date Of the inventory
or (2) the proper proportionate part
of the actual finished cost; or, under
abnormal conditions, (3) the proper
proportionate part of the sales part OF
the finished product, account being
taken in all cases of the proportion
ate part of the total cost Of basic
elements (naterials, labor and bur-
DEM represented in such goods IN
process of manufacture at the stages
at which they are found on the date
of the inventory. The inventories OF
taxpayers on whatever basis taken
will be subject to investigation by
the Commissioner, and the taxpayer
must satisfy the Commissioner OF the
correctness of the prices adopted. He
must be prepared to show both the
cost and the market price OF each
article included in the inventory. It
is recognized that in the latter part
of 1918, by reason among other things
of governmental control not having
been relinquished, conditions were
abnormal and in many commodities
there was no such scale OF trading
as to establish a free market. In
such a case, when a market was es-
tablished during the succeeding year,
a claim may be filed for any loss sus-
tanned in accordance with, the proyi-
sions of Section 214 (a) IL or Section
234 (a) IA of the statute. See Arti-
cles 261-26S. 2t-4o