Evening star., 1921-01-04
PUB[|CPROTECTED
|NNEW TAX ruling
Gets Benefit of Market Price
Used by Merchants in
inventories.
BY DAVID LAWRENCE.

Business men throughout the United
States are breathing easier as a re-
suit of decision by the Treasury
Department with reference to income
taxes. but they should bear in mind
warning which officials of the gov
ernment 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 teie-
and argued that, in view Of the ABB
normal conditions they should be
permitted In way. to charge this
years losses against last years busi-
ness. The Treasury took the matter
under sayissnent nd asssIss1ss.. aas Iulsssd. that sar
firine tp Adopt a. = basis fer; IN
ventoey} the actual market value to-
day OF the goods on hand. This means
that the government will not exact
as income money that Is really NOT
earned, and. the effect Of the ruling
on business in general should be ex-
ceedingly wholesome.
An Illustration.s y = :
y Because the terms of the ruling are
technical and rather complicated. it
can best be understood by an Illus
tration.
II . merchant had on hand $5,0eo
worth Of goods in December 81. 1873,
or. at any rate, II in his income tax
abatement he told the government that
he had $1,000 in goods In stock, that
item is used as q basis for the cal-
culation, Thus II. during the year ys
600 800 the total Of $4,000 would repre-
sent the value Of the goods ordinarily,
hnt In view Of the fact that in most
instances the selling prices have
fallen below actual cost, q mefcnane
e permitted to estimate naa aods wnat on hand ine
Supposing in this instance that
nr;ces nave shrunk so that the mar
Yet value of the goods Is only $s:0OO
The merchant, therefore, can dedoct
from sl7ooe and me tse cost of tse
oSs ol Ss'sHl sold. Then il he received $1O.-
eof for his goods during the year, his
ot,sI nrofit on which taxes would be
ne;d would be the difference between
the cost 5000 AND TIE his haigs money
VI we're only $1,000. he could sub
tept teact il from the cost Of $4,000 and
,.haw a loss Of $4,000, and pay no taxes
whatsoever.
.s.rket Price Is Factor.
r,A important factor. therefore. in
49,. -,,,;ns is market price. What does
49,. term mean? Every merchant will
-. "a make his own estimate. Natu-
-, a. he thinks the market price Is
80. lever than his original cost. he Is
lh1 n1 70 show that the goods have cost
ADle Great deal and that his profits
slan nm, ssies are less But the government
,ziij exercise careiui check Oh sNs
.,narLet price" and will investigate ara
.nnonare all classes Of returns so as TO
cop ,Ianpuar lust what the prevailing prices
.nsre at any given period. II II should
S;scoyered that a merchant on ms
;ncome tax return said the marke! Vaiue
- 90 many articles was such ana such
a price. the government WIN % see II ,he ,he
g, s,,archant actually gave the puohc the
hsnefit of those prices and. did sell
,,;. Goods at those figures. Should there
Nc a material discrepancy between what
~ income tax return said was the mar
Vet price and what the puonc actuaiy
Adherence prima facie evidence OF
srand and will prosecute Offenders.
Cost Of Replacing.
Actua, cost market price. according
o. Government officials, means the cost
~ merchant Of replacing the goods.
xrter all, that is the price which a
cn,,n~titor would have to pay for the
so,,,s kind of goods IL he had no stock
%, sn hand. and there will be plenty OF
INSTANCES of this kind on income tax
.atMrns which will enable the govern
ant to tell whether the man with the
nnnas on hand properly valued his
s1t 10 naturally to the interest OF the
rsrchant to show on his income tax
.ne,,rn .ner that his goods have shrunk to a
.man price, because that helps 70
Ss,ninish the size OF the pronts on
o,hanh taxes are paid, but II the gov
Sn,,aert doesn't ind the merchant sell
o.. 10 the public at somewhere near
.ns .ns Vices at which he fnventorted. .
e-sa sne of fraud will be entered. ana
cnH n trcome tax return will be held up
enS enS ali sorts Of complications would
5o1sOwh nU the other hand. government Of
sTa,s anticipate that bustness in
HHsnaral will obey the spirit OF the
,s,;nc and will be more than anxious
:. I've the public the benefit Of re-
Iv0..I,ions. 20 because in taking losses at
tHs. time the merchants will not have
- nav so much money to the govern
mant in taxes and may indeed In
meny instances have more money in
1ividuaily than they had q year ago,
but ny clearing their shelves and
continual on PAGE z. Column "a