The Lehi sun. [volume] (Lehi, Utah) 1913-1949, 1921-12-29
Inventories For
Income Taxpayers


The following statement on inven.
tories for income tax is issued by Col
lector OF Internal Revenue James IL.
Anderson of the District of Utah:
Merchants, manufacturers and
business men generally need expert
ence no difficulty In taking their In
ventories for the year 1921 to con
form with the new revenue act. The
language OF the Revenue Act OF 1918
and the Revenue Act OF 1921, (Sec.
203), relating TO inventories are
identical:
THAT whenever in the opinion OF
the Commissioner the use of inven-
tories Is necessary In order clearly to
determine the income of any taxpay-
er, inventories shall be taken by such
/ taxpayer upon such basis as the
Commissioner, with the approval OF
the Secretary, may prescribe as con
forming as nearly as may be to the
best accounting practice In the trade
OF business and as most clearly re-
fiecting. the income
present Treasury regulations
provide that inventories must be
valued at either cost or cost or
r
payers were permitted. regardless OF
their past practice, to adopt the cost
or market basis. which ever Is lower
In taking their inventories for 1920
Thereafter, the regulations provide.
changes can be made only after per-
mission is obtained from the Com
missioner OF Internal Revenue.
'In the case OF a merchant cost
means the invoice price less trade or
other discounts, excepting strictly
cash discounts approximating a fair
rate OF interest, which may be de-
Quoted or not at the option OF the
taxpayer. providing consistent
course is followed To the net in
voice price should be added the cost
OF transportation and other necessary
charges incurred in acquiring
possession OF the goods.
I'm the case OF manufacturer
cost means the cost OF raw mater
ials and supplies. expenditures for
labor and indirect costs incident to
production, including a reasonable
proportion OF management expenses,
but not including any cost OF selling
or securing return on capital
Market means the current bid
price prevailing at the date OF the
inventory for the particular merchan.
disc. The burden OF proof as to the
correctness OF the price rests upon
the taxpayer In each case. Where no
open market quotations are available
the taxpayer must use such evidence
OF fair market price at the dates
nearest the inventory as may be
aavilable. such as specific trans
actions or compensation paid for
cancellation OF contracts or purchase
commitments. Where, because OF alb
normal conditions the taxpayer has
regularly sold merchandise ut prices
lower than the market bid price, the
inventory may be valued ut such
prices. The correctness OF such
prices win be determined by refer
ence to the actual sales OF the tax
payer for a reasonable period before
and after the date OF inventory
Prices which vary materially from
the actual prices so ascertalned will
not be accepted. as rejecting the mar
ket.
"The value of each item IN the in.
ventory may be measured by cost OF
market. which ever is lower An en-,
tire stock may not be inven DRIED ut
cost and also at market price and the
lower OF the two inventories used
Inventories ON whatever basis taken
will be subject TO investigation by the
Commissioner OF Internal Revenue,
and the taxpayer must satisfy the
Commissioner OF the correctness OF
the prices adopted. He must be pre-
pared 20 show both the cost and the
market price OF each article included
In the inventry.
I'm the conduct OF modern business,
II is OF the utmost importance that
every business. large or small
whether corporation, partno rshlp or
individual, shall maintain an exact
record OF receipts and expenses. No
special system OF accounh is pre-
scribed by the Bureau or Internal
Revenue, but the books should show
in detail Inventories, purchaf es. sales,
capital Investments, deprecia ton, and
similar items required In mlklng up
income tax returns"