The public ledger. [volume] (Maysville, Ky.) 1913-1968, 1921-01-06
new INCOME TAX
RULINGS AID TO
BUSINESS men
Treasury Department Decision Means
That Government VIII Not Exact,
Levy That Is Really Not
Earned.

Washington, Jan. 5.-Business men
throughout the United States are
breathing easier as q result of two de-
cisions by the Treasury Department
with reference to income taxes, but
they should bear in mind warning
which officials of the government are
expressing Informally, namely that
unless the public gets the benefit of
the same prices as are put on income
tax blanks, there will be prosecutions
for fraud
The ruling of the Treasury Depart
ment is bound to relieve business men
everywhere, for thousands Of them
protested by letter and telegram
against existing regulations, and ar
gued that in view Of the abnormal
conditions. they should be permitted
in way to charge this years losses
against last years business. The
Treasury Department took the matter
under advisement, and has ruled I'M
der the law it was permissible for
firms to adopt as basis for inventory
the actual market value today of the
goods on hand. This means that the
government will not exact any income
money that is really not earned. and
the effect of the ruling on business
men should be exceedingly wholesome.
Because the terms of the ruling are
technical and rather complicated, it
can best be understood by an illus ra-
ton.
If merchant had on hand $4,000
worth of goods on December 81, 1919,
or at any rate, if in his income tax
statement he told the government that
he had $4,000 in goods in stock, that
items used as basis for the calcu-
lation. Thus, during the year 1920, he
bought more goods for $4,000, the
total of $4,000 would represent the
value of the goods ordinarily, but in
view Of the fact that in most instances
the selling prices have fallen below
actual cost, a merchant is permitted to
estimate what is the market value Of
his goods on hand Supposing in this
instance that prices have shrunk so
that the market prices have shrunk so
that the market value of the goods is
only $4,000. The merchant can deduct
$4,000 from $4,000 and the remainder
of $4,000 becomes the cost Of the goods
sold Then if he received $4,000 for
his goods during the year, his actual
profit on which taxes would be paid
would be the difference between the
cost $4,000, and the sales $4,000 or
$1,000. Similarly if his money receipts
were only $1,000, he would subtract 1t
from the cost of $4,000 and show a loss
of $4,000, and pay no taxes whatso-
ever.
The important factor, therefore, in
the ruling is market prices. What does
the term mean? Every merchant will
have to make his own estimate. Nat
urally If he thinks the market price is
much lower than his original cost, he
is ableto show that the goods has cost
him a great deal, and that his profits
from sales are less. But the govern
ment will exercise a careful check on
the market price," and will investi-
gate and compare all classes of re-
turns so as to discover just what the
prevailing prices were at given pc
Rod. II 1t should be discovered that a
merchant on his income tax return
said that the market value Of SO many
articles was such and such price, the
government will see If the merchant
actually gave the public the benefit OF
these prices and did sell his goods at
those figures. Should there be large
discrepancy between what the income
tax return said was the market price
and what the pubic actually paid, the
government will consider the differ
ence a prima facie evidence of fraud
and will prosecute offenders.
Actual cost market price, according
to government officials, means the
cost to a merchant of replacing the
goods. After all that is the price which
a competitor would have to pay for
the same kind of goods If he had no
stock on hand and there will be plen-
ty of instances of this kind on income
tax returns which will enable the gov
eminent to tell whether the man with
the goods on hand properly valued his
goods. 1t is naturally to the interest
of the merchant to.show on his income
tax returns that his goods have
shrunk to a small price because that
helps to diminish the size of the prof
its on which taxes are paid, but If the
government doesn't find the merchant
selling to the public at somewhere
near the price at which he inventoried
charge of fraud will be entered and
the income tax return will be held up
and all sorts of complications would
follow.
On the other hand government Off
Gals anticipate that business in gen.
eral will obey the spirit Of the ruling
and will be more than anxious to give
the public the benefit Of reductions
because. in taking losses at this time.
the Merchants will not have to pay 90
a.