Every evening, Wilmington daily commercial., 1921-12-19
INVENTORIES MUST
CONFORM TO TAX LAW
Collector Graham Says There
Should be No Difficulty
Taking Them.

The following statement is issued
by Collector of Internal Revenue "
T.. Graham Oft the district of Delaware.
Merchants. manufacturers and
business men generally need expert
ence no difficulty in taking their in
ventories for the year 1921 TO con-
form with tho new revenue act. Tho
language of the Revenue Act of 1918
and the Revenue Act of 1921 (Sec.
203), relating to inventories, is identi-
cal:
THAT whenever in the opinion OF
the Commissioner the use OF inven-
tories is necessary in order clearly to
determine the income of any Taxpayer
inventories shall be taken by such
taxpayer upon such basis as the Com
missioner, with the approval OF tho
Secretary, may prescribe as conform
ing az nearly as may be TO the bes,
accounting practice in the trade or
business and as most clearly reflect
ing the income.
Present Treasury regulations pro.
vide that inventories must be valued
at either cost or market. which
ever is lower Taxpayers were per-
mitted, regardless Of their pa,t prac-
tice, TO adopt the cost or market
basis, whichever is lower in taking
their inventories for 1920. Thereafter
the regulations provide. changes car
be made only after permission Ia OBJ
! tanned from the Commissioner of In
! ternal Revenue.
| IN, tho aasa ~ a niprahauf cost
means the invoice price less ;rade oi
other discounts. excepting strictly
cash discounts approximatinp "A fsiI
rate OF interest. which ay be de-
Quoted or not at tho opicio OF tho
taxpayer, providing n nsisten'
course is followed. To tho r'e' invoice
price should be added tn, NIT oi
/ transportation and other necessary
charges incurred in acquiring posses
sion Of the. goods.
I'm the case of manufacturer
/ cost means the cost of raw materials
and supplies. expenditures for Labor
and indirect costs incident 10 produc
ton, including q reasonable proper
ton of management expenses, but no
including any cost OF selling or Sc
curing return on capital.
Market meanx the current BIZ
price prevailing at tho date of the in
ventory for the particular merchan
disc. The burden of proof as to tn
correctness of the price rests upo
the taxpayer in each case. Where n
open market quotations are available
the taxpayer must use such evidenc
of a fair market price at dates near
est the inventory as may be availabl
such as specific transactions or con
pensation paid for cancellation of cor
tracts or purchase commitment
Where, because of abnormal cond
, tons the taxpayer has regularly so
! merchandise at prices lower than II
) market bid price, the inventory ma
/ be valued at such prices. The correc
ness of such prices will be determin,
by reference to the actual sales of Il
taxpayer for a reasonable period b
fore and after the date of inventor
Prices which vary materially fro
!. the actual prices so ascertained W
t i not be accepted as rejecting the ma
I ket.
q THE value ofNeach item in the il
I ventory may be measured by cost
market, whichever is lower. An enti
/ stock may not be inyentoried at co
and also at market price, and Il
lower of the two inventories used. L
ventories on whatever basis TAX,
: will be subject TO investigation by q
u Commissioner of Internal Revenr
q and the taxpayer must satisfy &
Commissioner of the correctness
the prices adopted. He must be pr
i pared TO show both the cost and 4
market price of each article
= cluded in the inventory.
In the conduct of modern busine!
!, il is Of the utmost Importance tn
!, every business, large or small, wheth
corporation, partnership or individu
: shall maintain an exact record of r
: ceipts and expenses. No special sy
= TEN of accounts is prescribed by {
n Bureau of Internal Revenue, but I
g books should show In detail inve
/ tories. purchases. sales, capital i
n vestments, depreciation, and simil
Le items required in making up incoI
- tax returns"