Atlanta tri-weekly journal. [volume] (Atlanta, Ga.) 1920-19??, 1921-01-06
TREASURY RULING
ON INCOME TAXES
RELIEVES BUSINESS
Public, However, Must Be
Given Benefit of Lower
Prices, Federal Officials
Warn
BY DAVID LAWRENCE
Ueased Wire Service to The Journal.)
DOWNRIGHT 1921


Copyright, 1921
WASHINGTON, Jan. 4.-Business
men throughout the United States
are breathing easier as a result of
two decisions by the treasury depart
ment with reference to income taxes,
but they should bear in mind a warn
ing which officials of the government
are expressing informally, namely,
that unless the public gets the bene-
on income tax blanks, there will be
prosecutions for fraud.
The ruling of the treasury depart
ment is bound to relieve business
men everywhere, for thousands of
them protested by letter and tele-
gram against existing regulations and
argued that in view of the abnormal
conditions, they should be permitted,
in a way, to charge this years losses
against last years business.
The treasury department took the
matter under advisement and has
ruled that under the law it was per-
missible for firms to adopt as a
y =
value today Of the goods on hand.
This means that the government will
not exact as income money that
which is really not earned, and the
effect of the ruling on business men
should be exceedingly wholesome.
Because the terms of the ruling
are technical and rather complicated,
- &
lustration.
Method Illustrated
If a merchant had on hand $4,000
worth Of good on December 81, 1919,
or, at any rate, if in his income tax
statement he told the government
that he had $4,000 in goods in stock,
that item is used as a basis for the
calculation.
Thus, if during the year 1920, he
bought more goods for $4,000, the
total of $4,000 would represent the
value Of the goods ordinarily. but in
view Of the fact that in most in
stances the selling prices have fallen
below actual cost, a merchant is per-
mitted to estimate what is the mar
ket value of his goods on hand.
Surprising in this instance that
prices have shrunk so that the mar
ket value of the goods is only $4,000.
The merchant, therefore. can deduct
$4,000 from $4,000 and the remainder
of $4,000 becomes the cost of the
goods sold, Then. if he received $1O.-
600 for his goods during the year,
would be paid would be the differ
ence between the cost, $4,000, and the
sales, $4,000, or $1,000. Similarly if
his money receipts were only $1,000,
he could subtract it from the cost
of $4,000, and show a loss of $4,000
and pay no taxes whatsoever.
The Important Factor
The important factor, therefore. In
the ruling is market price. What
does the term mean? Every mer
liant will have to make his own es-
innate. Naturally if he thinks the
original cost, he is able to show that
the goods have cost him a great deal
and that his profits from sales are
less. But the government will eX-
price" and will Investigate and COM
pare all classes Of returns so as to
discover just what the prevailing
prices were at any given period.
If it should be discovered that a
merchant on his income tax return
articles was such and such a price,
the government will see if the mer-
chant actually gave the public the
benefit of these prices and did sell
his goods at those figures. Should
there be discrepancy between What
market price ard what the public
actually paid, the government will
consider the difference a prima facie
evidence Of fraud and will prosecute
offenders.
Actual cost market price accord
ing to government officials means the
cost to a merchant of replacing the
goods. After all, that is the price
which q competitor would have to
pay for the same kind of goods II
he had no stock on hand and there
will be plenty Of instances of this
kind on income tax returns which
will enable the government to tell
whether the man with the goods on
hand properly valued his goods.
Compliance Expected
1t is naturally to the interest OF
the merchant to show on his income
shrunk to a small price because that
helps to diminish the size Of the
profits on which taxes are paid, but Il
the government doesn't find the mer-
chant selling to the public t some
where near those cost prices, the
VI LID " LII no SO
the income tax return will be held
up and all sorts of complications
would follow.
on the other hand, government Of
ficials anticipate that business in
general will obey the spirit Of the
ruling and will be more thar any
ious to give the public the beneht
Of reductions, because il taking
losses at this time the merchants
will not have to pay so much money
to the government in taxes and may
indeed in many instances have more
money individually than they had a
year ago. but by clearing their
Shelves and store houses Of last
years goods at low prices the way
will be paved for the purchase OF
new goods at low cost prices, MAX
ing possible the earning OF reason
able profits during the year 1921.
The ruling Of the treasury is not
paternaMstic. 1t is no sudden OUT
burst Of generosity, but IS a strictly
legal Interpretation of the revenue
law. Legal experts figured 1t out |
that unless the government per-
mitted firms to use present market
values as a basis for cost, the gov i
ernment would be exacting money |
that was not actually earned and |
business houses could contest the |
ruling in the courts and probably win |
by contending that the sums taken |
bv the government were taxes on |
capital which of course is not legal. |
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