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American Institute of Accountants
REGIONAL MEETING AT BOSTON

MORNING SESSION
The first regional meeting of New England members of the American
Institute of Accountants was held at the Copley Plaza Hotel, Boston, Massa-
chusetts, December 8, 1920.

Waldron H. Rand, of Boston, acting as temporary chairman, called the meeting to order at 10:30 A. M., and introduced Rev. J. Ralph McGee, who offered prayer.

Mr. Rand then addressed the meeting, extending a welcome to those present, and stated that it was the object of the gathering to bring together members of the American Institute and others interested in accounting who for various reasons were unable to attend the annual meeting of the American Institute.

Following Mr. Rand's address, Frederick Bond Cherrington, of Boston, was elected permanent secretary, and J. Edward Masters, of Boston, was elected permanent chairman.

Mr. Masters, upon being inducted into office, expressed his gratification at the honor conferred, and explained at some length the reason for the efforts made by the committee to bring about the development of the regional idea.

George Lyall, of Boston, president of the Certified Public Accountants of Massachlusetts, was next introduced, and read a paper on Accountancy in New England.

The next speaker was Homer N. Sweet, of Boston, who addressed the meeting on The Treatment of Commitments of Purchasers, etc., on a Certified Balance-Sheet.

A discussion by James N. Willing, of Boston, followed.

Carl H. Nau, of Cleveland, president of the American Institute, was then introduced by the chairman, and read a paper on The American Institute.

The next speaker was A. P. Richardson, secretary of the American Institute, who extended an invitation to all accountants present to make application for membership in the American Institute, if not already connected therewith.

A committee of five was appointed by the chair to decide upon the time and place of the next regional meeting and instructed to report at the afternoon session. This committee consisted of Messrs. Rand and Lyall (Massachusetts), Fisher (Rhode Island), Jordan (Maine), and Vannais (Connecticut).

The chairman, in announcing the closing of the morning session, extended an invitation to all present to attend luncheon as the guests of the Certified Public Accountants of Massachusetts.

AFTERNOON Session The meeting was called to order at 2:10 P. M., and J. Hugh Jackson, assistant professor of accounting at the Harvard graduate school of business administration, read a paper on Some Problems in Depreciation. At the close of his address a discussion of the paper was led by Chester A. Jordan, of Portland, Maine,

L. G. Fisher, of Providence, Rhode Island, then read a paper upon Inventory Values at December 31, 1920. Discussion of this paper was led by W. H. Moies, of Providence.

J. Pryse Goodwin made a motion that it be recommended to the American Institute of Accountants that the ruling of the reviewing board in Washington in relation to election of corporations to use cost or market values in inventories be approved, and that the commissioner of internal revenue be urged to give official sanction to it.

This motion was carried.

Mr. Rand, acting as chairman of the committee appointed at the morning session, announced that the committee had selected the third Wednesday in June and Providence, Rhode Island, as the time and place for the next regional meeting, and stated that a committee, headed by Lewis G. Fisher, assisted by Alfred P. Ward, had been selected. This committee was to be given the power to add to its number.

The report of the committee was accepted.

A vote of thanks was extended to the members of the committee, who had given their services in making the convention a success, and a vote of thanks was also extended to the Certified Public Accountants of Massachusetts for their hospitality. The meeting adjourned.

EVENING SESSION The evening session consisted of a banquet at 7:30. F. R. C. Steele, of Boston, acted as toastmaster.

Addresses were made by Carl H. Nau, of Cleveland; A. P. Richar on, of New York; Waldron H, Rand, of Boston; Chester A. Jordan, of Portland, and Herbert F. French, of Boston.

Lybrand, Ross Bros. & Montgomery announce the opening of an office at 820 L. C. Smith building, Seattle, Washington.

Herbert J. Brooke & Co., Chicago, announce that Charles H. Brooke has been admitted to partnership in the firm.

John K. Laird & Co. announce the opening of offices in the Columbus Savings & Trust building, Columbus, Ohio.

Smith, Brodie & Lunsford announce the opening of an office at Two Republics Life building, El Paso, Texas.

Income-tax Department

EDITED BY STEPHEN G. RUSK

This month's quota of treasury decisions contains some of exceptional interest at this time, and we commend to special attention treasury decisions 3108 and 3109.

These two appertain to inventorying at the end of the year 1920. It will be remembered that heretofore after a taxpayer had chosen his method of inventorying, either at "cost" or "cost or market," whichever was lower, it was impossible for him to adopt another method without making an appeal to the commissioner of internal revenue. Because of the great shrinkage in values that took place during the latter part of 1920, and the consequent shrinkage of profits, considerable pressure has been brought to bear upon the government to modify its ruling with respect to inventorying. These treasury decisions, undoubtedly, result from the consciousness of the government officers that some relief must be given to taxpayers so that it will be possible for them to inventory in such a manner that the losses that actually have taken place can be reflected in the income tax return.

Many taxpayers who adopted "cost" as their basis of inventorying would have been seriously embarrassed if they had been obliged to continue inventorying at "cost" when their cost was so much in excess of the amount that they could hope to obtain for the material they had on hand at the end

of 1920.

Treasury decision 3107 deals at great length with depletion of mines, oil and gas wells, and through this decision articles 201 to 224 of regulations No. 45 have been amended. The so-called amendments are, in reality, an entire revision of the language of the said articles. The regulation relative to depletion has been clarified by these treasury decisions in a most able and comprehensive manner. A careful comparison of the several articles will strongly impress one with the thought that has been put into this treasury decision. There are few who doubt that the excess-profits feature of the income tax law will be repealed, as it probably will be found inadequate for the purpose it was intended to serve, namely, that of producing revenue. Even if it were adequate, the chances are that it would be repealed because of the heavy burden it places upon business. On its negative side, however, the excess-profits tax law has been of great value, in that it has caused to be disseminated certain accounting rules and principles that would have taken accountants years to promulgate to the same extent. Among the more important ones the writer would place the rules for computing depletion of natural deposits and the rule for distinguishing between cash dividends and stock dividends.

Other treasury decisions contained in this issue of THE JOURNAL OF ACCOUNTANCY have a more limited interest than the three above mentioned, but are worthy of a careful reading.

(T. D. 3102, December 24, 1920) Income tax-Revenue act of 1918-Decision of court UNITED STATES CITIZENS RESIDENT IN PHILIPPINE ISLANDS–LIABILITY TO

Tax A citizen of the United States who resided in the Philippine Islands during the entire year 1918 is subject to the tax imposed by the revenue act of 1918.

The appended decision of the district court of the United States for the northern district of California, southern division, in the case of W. H. Lawrence v. Julius S. Wardell, collector, rendered November 16, 1920, is published for the information of internal revenue officers and others concerned.

SOUTHERN DIVISION OF THE UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF CALIFORNIA, SECOND DIVISION W. H. Lawrence, plaintiff v. Julius S. Wardell, collector of internal revenue

for the first district of California, defendant RUDKIN, district judge. The sole question presented by the demurrer in this case is this: Is a citizen of the United States who resided in the Philippine Islands during the entire year 1918 subject to the tax imposed by the revenue act of that year?

Section 1 of the act of 1916 imposed a tax upon the entire net income received by every individual “a citizen or resident of the United States" and upon the entire net income received by every individual “a non-resident alien" from all sources within the United States. This act was amended in 1917, but the amendment is not deemed material to our present inquiry. Section 210 of the act of 1918 imposed upon the net income of every individual a normal tax in lieu of the taxes imposed by the acts of 1916 and 1917.

From those provisions it will be seen that the tax is imposed on citizens of the United States regardless of their place of residence, or residents of the United States regardless of their citizenship, and upon the income of non-resident aliens from sources within the United States. Nothing is found in any other provision of the act in conflict with this view. Thus section 260 of the act of 1918 refers to individuals who are citizens of any possession of the United States, but not otherwise citizens of the United States, and the following section provides

that returns shall be made by individuals who are citizens or residents of Porto Rico and the Philippine Islands or derive income from sources therein, but makes no reference to citizens of the United States residing in the islands. For these reasons I am of the opinion that the tax was properly imposed and the demurrer is therefore sustained.

(T. D. 3105, December 27, 1920)

Income tax Contributions to Red Cross and other recognized war organizations deducted

in returns for the year 1918 In order to obviate the necessity of filing amended returns for the year 1918 by corporations which filed their completed returns prior to the publication of the opinion of the attorney general and claimed deductions on account of contributions to the Red Cross and other recognized yar organizations, corporations which filed their returns and claimed such deductions prior to the issuance of treasury decision 2847, should file immediately with the collector of internal revenue a statement showing the amount of such deductions claimed, the amount of the net income as reported and as corrected, and the amount of additional tax due by reason of the erroneous claiming of the deduction. The total amount of additional tax shown to be due by such statement should be paid at once, together with interest on each instalment from the original due date.

In cases where this procedure is followed amended returns will not be required, and the statements referred to when received by this office, through the collector's office, will be filed with the original returns in lieu of amended returns.

Failure to file a statement and make payment of the additional tax by a corporation will subject it to the 5 per cent penalty with interest for negligence when its return is audited and the deduction on account of contributions is disallowed.

(T. D. 3107, December 29, 1920)

Income tax Deductions allowed-Depletion Articles 201, 202, 203, 204, 205, 206, 207,

208, 210, 215, 216, 217, 219, 222 and 224, regulations No. 45, amended

Articles 201, 202, 203, 204, 205, 206, 207, 208, 210, 215, 216, 217, 219, 222 and 224 of regulations No. 45 are hereby amended to read as follows:

ART. 201. Depletion of mines oil and gas wells; depreciation of improvements.-Sections 214 (a) (10) and 234 (a) (9) provide that taxpayers shall be allowed as deduction in computing net income in the case of natural deposits, a reasonable allowance for depletion of mineral and for depreciation of improvements. The provisions of the statute and these articles do not apply to or affect the regulations covering invested capital, losses, accounting methods, etc.

The essence of these provisions of the statute is that the owner of mineral deposits, whether freehold or leasehold, shall within the limitations prescribed, secure through an aggregate of annual depletion and depreciation deductions the return of either (a) his capital invested in the property, or (b) the value of his property on the basic date, plus subsequent allowable capital additions (see art. 222), but not including land values for purposes other than the extraction of minerals.

Operating owners, lessors and lessees, whether corporations or individuals, are entitled to deduct an allowance for depletion and depreciation, but a stockholder in a mining or oil or gas corporation is not allowed such deductions (see further arts. 839 and 844).

When used in these sections of the regulations covering depletion and depreciation

(a) The term "basic date” indicates the date of valuation, i. e., March 1, 1913, in the case of property acquired prior thereto, the date of acquisition in the case of property acquired on or after March 1, 1913, or the date of discovery or within 30 days thereafter in the case of discovery.

(6) The "fair market value” of a property is that amount which would induce a willing seller to sell and a willing buyer to purchase. Where there has been no sale and the fair market value at the basic date is to be used, such value will be determined by the method which a prospective vendor and vendee in the industry would use in arriving at the sale value of the property at the basic date.

(c) A "mineral property" or "property” is the oil or gas well, including the mineral, plant, development, and surface value of the land. The value of a mineral property is the combined value of its component parts.

(d) A "mineral deposit” refers to “minerals only,” such as the "ores only" in the case of a mine, to the "oil only in the case of an oil well, and to the "gas only" in the case of a gas well. The value of a mineral deposit is its cost; or it is the value of the mineral property, less the value of the

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