Albuquerque morning journal. [volume] (Albuquerque, N.M.) 1903-1926, 1921-01-06
INVENTORY MAY Il
Be BASED upon
LOWEST FIGURE
Merchants Can Use Cost or
Replacement Value in
Computing Returns for
1920 Income Taxes.

192O income taxes.
Merchants in making inventory
| statements for the 1920 income tax
returns may make their calcula-
| tons on the cost of the stock or on
the market or replacement value, !
whichever is lower, according to an
amended regulation received at the /
office Of James A. Hall, internal
revenue collector. However, IL |
change is made from one system 10
the other it must be stated In the
return, and the same system must
be used throughout.
The following amended regula-
tons explain the processes and
give instructions for filing these
returns:
art. 1882. Valuation of Inven-
tories-+Inventories must be valued
at (a) cost or (b) cost or market,
as defined in Article 1884 as
amended, which is lower. (See
Article 1856 for inventories by
dealers in securities). Whichever
basis is adopted must be applied
consistently to the entire inventory.
"A taxpayer may. regardless of
his past practice. adopt the basis
of cost or market whichever is
lower for his 1920 inventory. pro-
yided disclosure of the fact and
thas II represents a change are
made i'm the return. Thereafter
changes can be made only after
permission is secured from the
commissioner. Inventories should
~, 10
properly computed and SUMMARY
ed, and should be preserved as
part of the accounting records of
the taxpayer. Goods taken in the
inventory which have been so in.
termingled that they can not ~
identified with specific invoices
will be deemed to be the goods
most recently purchased"
Systems Are Explained.
The following explains the use
of the amended system:
cart. 1884. Inventories at Mar
ket-Under ordinary circumstances
market means the current bid
price prevailing at the date of the
inventory for the particular mer-
chandise in the volume in which
ordinary purchased by the taxpay-
err. This method of valuation is
applicable in the cases (a) of goods
purchased and on hand, 90 of
basic elements of cost (materials,
labor and burden) in goods In pro-
cess of manufacture, and Co of
finished goods on hand; exclusive,
however, of goods on hand or in
process of manufacture for delivery
upon 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 quota
lions are available, the taxpayer
must use such evidence of fair
market price at the date or dates
nearest the inventory as may be
available, such as specific transact
tions in reasonable volume entered
into in good faith, or compensation
paid for cancellation of contracts
for purchase commitments, Where,
owing to abnormal conditions, the
taxpayer has regularly sold such
merchandise at prices lower than
the current bid price as above de-
fined the inventory may be valued
at such prices. and the correctness
of such prices will be determined
by reference to the actual sales of
the taxpayer for a reasonable
period before and after the date of
the inventory.
Prices Must Be Reasonable
prices which vary materially
from the actual prices so ascer-
tanned will not be accepted as re-
fleeing the market and the penal
ties prescribed for filing false and
fraudulent returns may be assert
| ed. Goods in process of manufac-
ture may be valued for purposes of
the inventory on the lowest of the
following bases: CD the replace
ment or reproduction cost prevailing
at the date or the inventory; or ca
| the proper proportionate part of
the actual finished cost; or. under
abnormal conditions, CD the
proper proportionate part of the
sales price of the finished product,
account being taken in all cases of
the proportionate part of the total
cost of basic elements (materials,
labor and burdenO represented in
such goods in process of manufac-
ture at the stages at which they
are found on the date of the in
ventory.
"Thc inventories of taxpayers on
whatever basis taken will be sub
jcct to investigation by the commits
siOncr. and the taxpayer must sat
isfy the commissioner of the corr
rectness of the prices adopted. He
must be prepared to show both the
cost and the market price of each
article included in the inventory.
1t is recognized that in the latter
part of 1918. by reason among
other things of governmental con-
troll not having been relinquished,
conditions were abnormal and in
many commodities there was mo
such scale of trading as to estab-
lish a free market. In such a case,
when a market was established
during the succeeding year, a claim