The Denver Jewish news., 1921-12-28
Government Requirement
For Inventories


Revenue at Washington, and it is of
great Importance to every taxpayer
whose business requires the use of an
inventory:
Merchants, manufacturers and
business men generally need expert
cnce no difficulty in taking their in
ventories for the year 1921 to conform
with the new revenue act The Ian
guage 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 taxpayer,
payer upon such basis as the Commis-
sioner. with the approval of the Sec
rotary, may prescribe us conforming
as nearly us may be to the best ac-
counting practice in the trade or busi-
ness and as most clearly rejecting the
| income"
present Treasury regulations pro-
vide that inventories must be valued
Mt either cost or cost or market.
which ever is lower Taxpayers were
permitted, regardless Of their past
practice, to adopt the cost or market
basis whichever is lower in taking
their inventories for 1920. Thereafter,
the regulat tions provide, changes can
he made only after permission is OBJ
tanned from the Commissioner of In
ternal Revenue.
'.In the case of merchant cost
means the invoice price less trade or
other discounts, excepting strictly
cash discounts approximately a fair
rate of interest, which muy be deduct
ed or not at the option of the tax
payer. providing consistent course
is followed To the net invoice price
should be added the cost of transpor-
fntion and other necessary charges ill.,
Cured in acquiring possession of the
goods.
'In the case of manufacturer
cost means the cost of raw materials
and supplies, expenditures for labor
and indirect costs incident to produc-
ton, including reasonable proper
including any cost of selling or Sc
curing return on capital.
market means the current bid
price prevailing ut the date of the ill.,
ventory 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 4
fair market price Mt the dates nearest
the inventory as may be available,
such as specific transactions or com
pcnsatiOn paid for cancellation of con-
tracts or purchase commitments.
Where because of abnormal condi-
tions the taxpayer has regularly sold
merchandise at prices lower than the
market bid price. the inventory may
he valued at such prices. The correct
ness of such prices will be determined
by reference to the actual sales of the
! taxpayer for reasonable period be-
| fore and after the date of inventory.
Prices which vary materially from the
actual prices so ascertained will not
be accepted as rejecting the market.
"The value of each item in the in
vcntory may be measured by cost or
| market, whichever is lower. An entire
stock may not he inventoried at cost
and also at market price. and the low
| er of the two inventories used. In
vcntories on whatever basis taken will
be subject to investigation by the com
missioner of Internal Revenue, and
the taxpayer must satisfy the Com
| missioner of the correctness of the
prices adopted. He must he prepar-
ed to show both the cost and the mar
ket price of each article included in
| the inventory.
"Iu the conduct of modern business,
| ii is of the utmost Importance that
/ every business, large or small, wheth-
er' corporation, partnership or indiyid-
ual, shall maintain an exact record
of receipts and expenses. No special
system of accounts is prescribed by
the Bureau of Internal Revenue, but
( the books should show in detail invcn-
tories, purchases. sales, capital invest
/ mcnts, deprecia ton, and similar items
required in making up income tax re-
turns" Respectfully,
+. W. Howbcrt.
Collector.