September 25, 1919 



HARDWOOD RECORD 



21 



owned March 1, 1913, and that acquired since (See Question 112) If he 

 does so, the table will be raade separately for each. 



Physical PnorERTV. Questions and Tables 200-210 

 These are In the main self-explanatory or suggestive of a systematic 

 presentation of claims for depreciation of physical property. They should 

 be studied carefully in connection with the Treasury regulation referred to 

 and with the explanatory notes (Questions 207-210). Of partciular impor- 

 tance is the opportunity discussed under 207 to revise past returns and to 

 credit capital accounts with items formerly charged off as operating 

 expense. The taxpayer may adopt the policy in this respect that will 

 best protect his interest, but will be expected to sticli to it. Under 

 certain circumstances it may be best to build up the capital account, 

 wherever this nmy be done, wath operating, plant and timber expenses 

 which are costs and betterments and have been improperly charged to 

 operations. Such transfers to capital account enhance the investment 

 upon which the tax rate is based, as well as capital assets for purpose of 

 depletion and depreciation. Sound accounting methods are therefore highly 

 important. 



Question 206 (class 5) concerning intangibles refers to patents, copy- 

 rights, licenses and franchises (the last two frequently important in lumber 

 operations). Trade names, trade marks, good will and secret processes are 

 excluded. 



AoDiTiuNAL Timber in Block. Question 211 



The information here asked with reference to the proljable life of the 

 operation, which affects on the rate of depletion and depreciation, should 

 cover any fairly probable timber supply not reported as owned, even if not 

 within the mapped block. It would include private, state or government 

 timber tributory and likely to be purchased by the taxpayer, or a fairly 

 certain supply through open log market. While on the one hand such 

 evidence might be derogatory if the taxpayer l>elieves the proper !>asis is 

 his own material only, because he does not expect to purchase and prefers 

 to show a shorter life and higher rate ; on the other hand there may easily 

 be cases where no allowance could be made without such showing, as for 

 example a new plant without any timber supply and hence not in the 

 category of wasting industries. 



Raw M.^terial Handled. Questions 212-226 



This series is to be taken in connection with each plant discussed in the 

 above physical property sections and with its product discussed in the 

 series immediately following. It checks the conversion of estimated 

 timber stand into material having similar measurement, as distinct from 

 the further manufactured product taking lumber or like tally. But it 

 mainly involves inventories of unmanufactured products where such inven- 

 tories are recognized. By "each" operation, these connected series mean 

 separate identities as to economic considerations. Logs from the same 

 source destined for distinct milling operations should be kept apart if the 

 latter are also discussed separately. 



An exception to the above may exist when this table is used, as it is also 

 required, by taxpayers whose operations are not connected with milling but 

 consist of producing such products as logs, bolts, poles, hewed ties, mine 

 timbers, etc., for disposal as such. 



Finished Products Handled. Questions 227-240 

 Lumber Inventory. Question 241 



Still following the same unit of operation, these seek information con- 

 cerning conversion of the raw products using woods scale into finished 

 products like lumber, lath, etc., using manufactured tally and involving 

 other inventory. 



Shifts Operated and Capacity. Questions 242-244 

 The chief purpose here is to get capacity, as a guide to both plant valua- 

 tion and possible influence on the life of the operation — both being factors 

 in depreciation. 



Character of Plant in 1918. Que.stions 245-252 

 Same as above. 



Profit or Loss fro.m Sale of Capital Assets. Questions 25.3-287 

 Self-explanatory. 



LiTir.ATioNS. Questions 288 

 No interest is taken in these except as they have bearing on the value of 

 the property. List onl.v, for possible reference, without description or 

 comment unless the taxpayer desires to call attention to some point. 

 Transactions with Affiliated CoRPOR.iTioNS. Question 289 

 In accordance with Treasury regulations quoted, which bear upon inter- 

 locking relations upon requirements in certain instances for consolidated 

 retvirns. 



Appendix. Treasury Regulations 

 Here for the first time lumbermen taxpayers are furnished an up-to-date 

 compilation of the most important regulations interpreting the laws by 

 which both they and the Revenue Bureau must be governed. Their study 

 will disclose many reasons for the questionnaire and suggest the attitude 

 in which it should be met. Their issuance in this form is a distinct service 

 to all who have not legal and other facilities for getting the pertinent and 

 latest rulings. 



Conclusions 



Consistent interpretation and answering of the questionnaire will be of 



service to government and industry alike. Lumbermen should attend the 



meetings on the sub,iect, consult freely with the regional valuers to be 



stationed in their districts, and discuss the subject with each other, in 



order that ther* may be the minimum of contradictory incorrect information 

 Regional associations should extend assistance to non-members as well as 

 members. It will be well also if means can be found, without betraying the 

 confidence of individuals, to collect and digest for the advantage of the 

 industry, much of the information which otherwise will exist unutilized 

 for this purpose in the files of the Treasury and of the taxpayers. 

 A Later Circular 

 It is probable that after a few of the coming meetings between taxpayers 

 and Treasury officials have developed the most common difficulties, the 

 National Lumber Manufacturers' Associa.tion will Issue a more complete 

 primer to assist in the final filling out of the questionnaire. 



Add New Articles to Timber Questionnaire 



The two following additions have been made to the timber ques- 

 tionnaire being sent to timber owners for the purpose of arriving 

 at a fair basis of figuring timber value in taxation. The ques- 

 tionnaires are now being mailed out: 



The final edition of Regulations No. 45 is amended by the insertion of 

 two new articles to be known as Article 234 and Article 235, as follows : 



Article 234. Dctcrmiiintion of Fair Market Value oj Tmher. Where 

 the fair market value of the property at a specified date in lieu of the cost 

 thereof is the basis for depletion and depreciation deducUons, such value 

 must be determined, subject to approval or revision by the commissioner, 

 by the owner of the property in the light of the most reliable and accurate 

 information with reference to the condition of the property as it existed 

 at that date, regardless of all subsequent changes such as changes in sur- 

 rounding circumstances, in methods of exploitation, in degrees of utiliza- 

 tion, etc. The value sought should be that established assuming a trans- 

 fer between a willing seller and a willing buyer as of that particular date. 

 No rule or method of determining the fair market value of timber prop- 

 erty is prescribed, but the commissioner will give due weight and con- 

 sideration to any and all facts iind evidence having a bearing on the mar- 

 ket value, such as cost, actual sale.s and transfers of similar properties, 

 market value of stock or shares, royalties and rentals, value fixed by the 

 owner for purposes of the capital stock tax, valuation for local or state 

 taxation, partnership accountings, records of litigation in which the value 

 of the property was in question, the amount at which the property may 

 have been inventoried in probate court, disinterested appraisals by ap- 

 proved methods, and other factors. For depletion purposes the cost of 

 the timber or its fair market value at a specified date shall not include 

 any part of the cost or value of the land. 



Article 235. Determination of Quantity of Timber. Each taxpayer 

 claiming a deduction tor depletion is required to estimate with respect to 

 each separate timber account the total units (feet board measure, cords, 

 or other units) of timber reasonably known or on good evidence believed 

 to have existed on the ground on March 1, 1913, or on the date of 

 acquisition of the property, as the case may be. The taxpayer, according 

 to his best knowledge and belief and in the light of the most accurate and 

 reliable information, will estimate the number of units of timber actually 

 present upon the specified date; this estimate will state the number of 

 units which would have been found present by a careful estimate made on 

 the specified date with the object of determining 100 per cent of the 

 quantity of timber which the area would have produced on that date if 

 all of the merchantable timber had been cut and utilized in accordance 

 with the standards of utilization prevailing in that region at that time. 

 It subsequently during the ownership of the taxpayer making the return 

 additional units of timber are found to be available tor utilization as the 

 result of the growth of the timber, of closer utilization as the timber, of 

 the utilization of species of trees not formerly utilized, of underestimates 

 of the quantity of timber available on the specified date, etc., which were 

 not taken into account in estimating the number of units for purposes of 

 depletion, or if it shall be found in the course of operation that timber 

 Included in the estimate is not merchantable as the result of deterioration 

 through rot or otherwise, or that the original estimate was too great, a 

 new estimate of the recoverable units of timber (but not of the cost or 

 the fair market value at a specified date) shall be made and when made 

 shall thereafter constitute a basis for depletion. In the selection of the 

 unit or units of estimate the custom applicable to the given type of timber 

 in the given region should be considered. 



Building Prospects in Chicago 



The ending of the carpenters' strike in Chicago, after it had 

 been in progress ten weeks, sent 100,000 men back to their jobs 

 and opened tlie way for resumption of work on buildings totaling 

 a value of $125,000,000. The loss resulting from the weeks of idle- 

 ness is placed at about $100,000,000. Some people estimate it $25,- 

 000,000 above that. The strike put Chicago relatively far behind 

 many other cities for the time being, although in spite of the 

 gloomy outlook, many permits were taken out during the past two 

 months. But, .iudged by preceding years and corresponding months, 

 the falling off in building permits in Chicago on account of the 

 strike apijarently was about 22,000. 



