20 



HARDWOOD RECORD 



September 25, 1919 



years before and three years after that date ; also to give him a chance to 

 support his statements. Transaction records are not supposed to be final, 

 or to- be the only method of ascertaining values, since in some regions 

 they may be misleading. I'rovision is made elsewhere for other evidence 

 and the regional valuers will also supply the element of expert opinion. 



The 1,000-acre minimum is arbitrary, to avoid calling tor work on unim- 

 portant or perhaps abnormal transactions, but it is permissible to include 

 those of smaller acreage if the taxpayer desires to do so, or (Question SI) 

 to describe transactions other than his own It is quite possible that all 

 these transaction records of different taxpayers in a given regiou ma,\- be 

 complied or plotted to show average prices as a check on individual 

 statements of 1!»13 values, but only as a rough check, to indicate whether 

 such statements are far out of line, and not to preclude support of such 

 individual showing. 



Each transaction must be reported separately, with Questions 2~>->il 

 answered in each case. 



Question "il* introduces here the principle adopted by the department, in 

 order to simplify calculation of timber depletion, of attempting to establish 

 uniforinly the actual complete stand of timber instead of using the over- 

 conservative estimating standards that has been customary at some time 

 and in some rc„'ions. I Kee discussion of Question 93, also note after 

 Question Btl in the questionnaire itself, which explains that discrepancy 

 between the "100 per cent estimate" and that shown by the taxpayer's 

 records will be understood.) 



Question 59, which is also repeated under other headings, permits the 

 taxpayer to bring out any evidence as to the especial value of the 

 particular timber in question. The (piestion is sugestlve only. He may 

 Introduce anything to show its high (piality and value as compared with 

 averages in the same species or region. 



Question G:! continues the principle of the "100 per cent" estimate and 

 the unit values should be adjusted if necessary. For example : Suppose 

 it is now know'n, and would have been known at the time of transfer hail 

 a thorough- cruise on a scale basis been made and all then merchantable 

 materia! recognized by both buyer and seller, that a given tract contained 

 approximately ."iii,000.000 feet. But the element of uncertainty, overrun, 

 etc., were recognized by both under a prevailing system of un<lerestimating 

 by about 20 per cent, and the transaction was made on the basis of but 

 40.000,000 feet and at .1:2. .")0 per thmisand. or a total consideration of 

 $100,000. ()bvlously ,i;2.r)0 Is not a correct valuation on a full estimate, 

 hence entry under Question 6:) should be of 50,000,000 feet at $2 per 

 thousand, f'.ut if It was presumed at the time that 40,000,000 feet was a 

 full estimate, ,$2.50 remains correct as an evidence of value. To apply it to 

 the full quantity of 50,000,000 would, however, bring a total consideration 

 greater than the fact. The correct answer in this case is to enter the 

 "100 per cent" quantify and the actual consideration, also the $2 valuation 

 which this autiunatically enforces, but to explain as encourageil by 

 Question SO how this is Incorrect as a measure of true value to be applied 

 to any check of capital asset claims. Question 80 is to permit explaining 

 nil such alinormalitles. 



Question 81 encourages bringing the evidence of transactions other than 

 by the taxpayer, an<l of any size, if he thinks these will contribute to a 

 more correct understanding. 



St.\ti-s .^s OF March 1, liilM. (Jie.stioxs 82-111 



This series affords opportunity to make an entirely new set-up of capital 

 assets in tindjer on March 1, 1913, returnable through depletion, and 

 supersedes all previous returns on this subject if these are shown to have 

 been made in error as to either understanding or Information. It Is thus 

 perhaps the most important section of the questionnaire. 



Actual facts as to the property and its value on the date mentioned are 

 sought, unprejurticeil by any inconsistent or erroneous record. The note 

 under Question 93 (together with recent modittcations of Treasury regula- 

 tions to fit the questionnaire) gives credit for any accretion of quantity up 

 to Mari'h 1, 1913, due to growth or correction of estimate, it further 

 relates the principle already alluded to that, to obviate complications when 

 actual 100 per cent cutting returns are applied to incorrect estimates of 

 the original stand, the latter should he established now on a 100 per cent 

 basis, in the light of all information now available, regardless of previous 

 estimates and of previous Treasury rulings that only information existing 

 on March 1, 1913, may be utilized. 



Note under Question 107 emphasizes that where the quantity reported on 

 the 100 per cent basis exceeds that represented by underestimate systems, 

 the unit value should be ad.1usted. If previous estimates recognized uncer- 

 tainties but still contemplated such an aggregate over-run as fixed a unit 

 value higher than would have been agreed upon for actual scale, it would 

 not be fair now to return to the full quantity at such artificially Inflated 

 unit value. 



Questions 90-91, 99, and 106-110 suggest setting up values for young 

 growth, for land distinct from timber, and for other properties and rights 

 which may have been overlooked by some taxpayers. Unless these are set 

 up, they can not be claimed for through loss, depletion or depreciation, 

 or in the sale of capital assets. 



Question 111 permits introduction of any pertinent evidence whatever 

 as to values, such as court records, expert opinion, etc. 



Purchases, March 1, 1913, to End or 1918. Questio;^ 112132 



This series Is for the same general purpose of eliciting full information 

 concerning capital assets represented by timber property, except that it 

 applies to that acquired since February, 1913. and hence valued at the 



actual purchase price. The same considerations apply throughout as to 

 reducing to actual stand and making the same classifications for purposes 

 of depletion. 



Purchases from March 1, 1913, to December 31, 1916, if they involved 

 over 1,000 acres, will already have been described under Questions 25-81 

 and may be omitted In this series, except for listing and reference. 

 .Sale : Agckegate eor Each Block ; March 1, 1913, to Exu of 1918. 

 QiESTiONS 133-138 



Self-explanatory. A summary, to precede the consideration of depletion, 

 of the transactions described in detail later under the heading of "Profits or 

 Loss from Sale of Capital Assets." 



LO.SSES. QUE.STIONS 139-158 



These questions indicate the character of losses which may be claimed 

 for: also the information which will support such claims. Although they 

 mention only losses entered in previous tax returns, it is permissible to 

 claim any loss for which relief should be given, either by new return or 

 amendment of old returns. They suggest considering the values of young 

 unmerchantable timber wherever this is referred to In the questionnaire. 

 Question 147 recognizes the possible financial injury to timber not directly 

 damaged, by reason of its isolation, abandonment, or increased cost of 

 realization. This series suggests to forest protective agencies that their 

 records and reports may support or contradict claims by taxpayers. 

 Protection of Timber. Qcestiuns 159-161 



The object here is partially to determine the effort of tax payers to 

 prevent the losses for which they ma.\' claim. .\lso to get information 

 concerning protection expenditures which it may be sought to transfer from 

 operating accounts to capital accounts which is allowable and frequently 

 advantageous to taxpayers. ( See Question 207.) 



Growth. Que.stions 162166 



Comparatively few will be able to answer many of these questions. 

 Where the information exists it may contribute to understanding of 

 quantit.A' or quality increment claimed since acquisition, of Increase In 

 young timber \tilues, of future discrepancies between estimate and realiza- 

 tion, and of the probable life of operations. Again in some operations it is 

 customary to practice selective cutting, leaving certain material to be cut 

 later, which not only involves some complication in present depletion 

 returns but also injects the element of growth into future returns. 

 Valuation by Species. Question 167 



This applies to selective cutting where the taxpayer desires depletion 

 i-redit fixed only b.v the value of the species he removes, as, for example, 

 when iinly hardwoods or softwoods are being taken from mixed stands. 

 Timber Cutting Record.s. Questions 168-186 



This information checks the basis and accuracy of depletion allowances, 

 and the relation between estimated assets and the actual realization. 

 Table 169-173 checks the operation itself, as a whole; Table lSO-186 more 

 particularly the variations in fullness and accuracy of estimates as these 

 differ by individuals, methods and periods, having bearing on their weight 

 wherever encountered in connection with this operation or others in the 

 region. 



Depletion Chargeo. Question 187 



Self-explanator.v. A record of past returns. 



Capital Returnable Through Depletions Table 188-199 



A revised and systematized tiepletion calculation. Although somewhat 

 hard to grasp in blank, this Is an obvious and necessary procedure which is 

 little more than mechanical transfer from the books of figures from each 

 timber account. .\n example is here given. 



Depletion 



Company owneil 100.000,000 feet valued at $5 per thousand, making 

 capital returnable .$500,000. Purchased 10.000,000 feet at ,$10 per thousand 

 during the year, making total 110,000,000 feet and value ,$600,000. Cut 

 20,000,000 feet, sold 5,000,000 feet and lost 4,000,000 feet in a fire ; all of 

 this depleted at $6 per thousand feet the unit value of the stumpage. 



Quantity In M 



ft. hoard meas- 



Name of Account — urelogscaleor 



other unit Value 



(1) (2) 



189. Quantity and capital returnable 



through depletion at beginning of 



year 100.000 M ft. .$500,000.00 



190. Acquired during year 10.000 M ft. 100.000.00 



191. Total at end of vear 110,000 M ft. 600,000.00 



192. Quantity of timber cut during year. 20,000 M ft 



193. Unit value returnable through de- 



pletion (191 column 2 divided b.v 



191 column 1 ) 5,45 



194. Depletion sustained during vear 



[192 (1) multiplied by 193 (2)] 109.000.00 



195. Balance at end of year [191 (1) 



less 192 (1) and 191 (2) less 



194 (2)1 90,000 M ft. . . 491,000.00 



196. Quantity of timber sold during year. 5,000 



197. Quantity of timber lost by fire, or 



other cause, or abandoned during 



year 4,000 



198. Total reduction in addition to 192 



and 194 [196 Hi plus 197 (1) ; 



198 (1) multiplied by 193 (2)] . . 9,000 49,050.00 



199. Net quantity and value at end of 



year (195 minus 198) 81,000 M ft. 441.950.00 



It is optional whether the taxpayer keeps separate accounts for timber 



