Arizona republican., 1921-01-10
RECENT RULING ON
 INCOME TX POINTS

IHUUlElL iEliA ! UaaE O
 Important points are cleared up in a recent ruling on the income tax rela- tive to inventories. The following sum mary of the ruling has been issued by Alfred Franklin, internal revenue col lector here:
 T. D. BIOS amends Regulation 45, Article 1882, as follows:
 Valuation of entories-Tnventorie must be valued at (a) cost or (b) cost or market, as defined in Article. 1884 as amended, which ever Is lower. (See Article 1885 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- vided a disele sure of the fact and that 1t represents a change are made in the return Thereafter changes can be made only after permission is secured from the commissioner. Inventories should be recorded in a, legible manner properly computed and summarized. and should be preserved as a 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 in
 voices win be deemed to be the goods most recently purchased.
 T D. BIOS amends Article 1584 and l T. D. so47 as followss
 Inventories at market-Under ordi- l nary circumstances market" means
 the current bid price prevailing at the date of the inventory for the particular
 merchandise in the volume in which ordinarily purchased by the taxpayer. This method of valuation is applicable l in the bases (a) of good purchased and l on hand (b) of basic clements of cost 1 (materials, labor and burden) in goods
 in process of manufacture. and (c) of
 finished goods on hand; exclusive,
 however, of goods on hand or in proc 1 eSs of manufacturing for delivery upon
 firm sales contracts at fixed prices en- 1 tered into before the date of inventory, 1 which goods must be inventoried at 1 cost. Where no open market quota tions are available the taxpayer must
 use such evidence of a fair market 1 pxiee at a date or dates nearest the i inventory as may be available, such as
 specific transactions in reasonable VOL
 ume entered into in good faith, or com- l pensation paid for cancellation of con-
 tracts for purchase commitments. And
 where. owing to abnormal conditions, the taxpayer has regularly sold such
 merchandise at prices lower than the current bid price as above defined, the
 inventory may be valued at such prices
 and the correctness of such prices will
 be deternoined by reference to the ac-
 tual sales of the taxpayer for a req
 sonable period before and after the date of the inventory. Prices which vary
 materially from the actual prices so
 ascertained will not be accepted as re- flecting the market and the penalties
 prescribed for filing false and fraud
 ulent returns may be asserted. Goods in process of manufacture may be val ued for purposes of the inventory on the lowest Of the following bases. t1)
 the replacement Or reproduction cost
 prevailing at the date of the inventory; or (21 the proper proportionate part of the actual finished cost; or under ab-
 normal conditions, (3) the proper pro- portionaIe part of the sales price of the sales price of the finished product, ac- count being taken in all cases of the : prooprtionate part of the total cost oi basic elements (materiaIs, labor and burdena, represented in such goods in process of manufacture at the stages al ' which they are found on the date oi the inventory The inventories of tax
 pagers on whatever basis taken will bs subject to investigation by the com. T missioner. and the taxpayer must sat i isfy the commissioner of the correct. < ness Of the prices adopted. He mus ' be prepared to show both the cost and | the market price of each article in.
 cluded in the inventory. It is recog- = ntzed that in the latter part Of 1911 - - by reason ,anong other things. of gov z ernmental control not having been re ' linquished, conditions were abnorma s and in many commodities there was m q such scale of trading as to establisl II a free market. Tn such case, when {
 market was established during the sue ,0 ceeding year, a claim may be filed fo h any loss sustained in accordance wIu
 the provisions of Section 214 (a) 12 Q Section 234 (a) If of the statute. Sc is Articles 261-26S.