Supplement 



HARDWOOD RECORD 



October 10. 1919 



consin. lie said he could see no reason why the birch in Wisconsin in 

 1913 was not worth as much as in northern Michigan. 



Mr. Von Platen said that he went into northern Michigan because at 

 that time he figured that the timber was just as good as the lower Michigan 

 timber, whereas the northern Michigan and Wisconsin operators had not 

 yet awaliened to the true value of their trees. 



Mr. Von Platen also aflSrmed that cutting In 1913 was about on the 

 same basis of utilization as today, saying that some small .stu£E was cut 

 then because lumbermen figured it would be left in the woods anyway, and 

 hence if it were tal<en out the operation could be reckoned without stump- 

 age cost showing a small profit on the deal. 



He said that it was impossible to get conscientious work by the woods- 

 men, who would not follow instructions as to what to take and what to 

 leave, so it required either clear-cutting or leaving valuable timber in the 

 woods, and the result was clear-cutting. 



Mr. Von Platen .said that it could be proven that in 1902 lower Michigan 

 timber ran to $125 an acre an<l at the same time timber in Wisconsin was 

 perhaps .$25 to .f35 an acre. 



Mr. Foster then talked on the question of reckoning values on pulp- 

 wood, cedar, etc. He said also that there was not enough difference 

 between quality and logging expense, etc., in Wisconsin and northern 

 Michigan to warrant splitting the country up into districts, and that it 

 would work out easier if prices for hemlock, birch and other woods were 

 establLshed and all treated as one zone. The greatest difficulty would be 

 experienced in handling cedar, as very few know how much cedar they 

 have. 



He suggested the. possibility of figuring it on an acreage basis. Including 

 cedar, spruce, pulpwood, cordwood, etc.. in that way and that it should 

 follow the price on the lands. This, he said, would make it much clearer 

 than to attempt to estimate so many pieces of poles, posts, etc. 



Mr. Goodman stated that unquestionably one timber section was as well 

 favored as another in markets, and that markets are the determining 

 factor in values and that therefore the reckoning of values for the same 

 kind of stuff would undoubtedly run very uniformly throughout the entire 

 region. He said that as far as quality is concerned also there is compensa- 

 tion as between the various regions, as where one wood will show better 

 quality in one region, another important species will show a better quality 

 in another region. 



Mr. Goodman further suggested here the desirability of working out a 

 lucid plan for handling the cedar, pulpwood and similar products, as these 

 questions have to. Ite filled out just as completely as do the saw logs. 



On question. Major M»son said that in making out additional informa- 

 tion that can not be put on the questionnaire, it is not necessary to u.se 

 any certain form, but it is desirable to use uniform sized sheets similar to 

 the size of the questionnaire sheets. 



Mr. Collins raised the question of values based on transaction involv- 

 ing the purchase of timber since March 1, 1913, which has been subse- 

 quently cut and which is carried at cost and on which that cost was below 

 what stumpage was figured March 1, 1913. 



Mr. Goodman said that he firmly believed 1913 values higher than cost 

 since 1913, which are made up from purchasing in small scattered tim- 

 ber holdings. He said that he believed timber purchases since 1913 will 

 show a smaller average unit value when the 100 per cent scale is put on 

 than the timber values as of March 1, 1913. 



Tuesday Session 



Mr. Quinlan : .\ question comes up in my mind I would like to ask. 

 and that is this: Our return in our answers and our questionnaire, going 

 back over the years, will not in every instajice tally exactlv with the 

 income returns we have made in those years. Is it necessary for us to 

 immediately file a set of amended returns or will you audit "our returns 

 with the information that you have from the questionnaire after you have 

 made your own determination of values and depreciation — will ' you not 

 audit our returns for us instead of requiring us to file an amended set? 

 .Major Mason : I expect the simplest way to handle that would he when 

 you find you are making corrections of original returns through the ques- 

 tionnaire, to simply, in a letter of transmittal, call attention to those 

 points simply to show you know you have made the changes and call our 

 attention to the fa<t, and then when we go over the questionnaire from 

 a valuation point of view we will have that in mind and the auditors who 

 would go over the last three years of returns will also have it in mind 

 and will take it into account in making whatever adjustments, if any, are 

 nece.ssary. I do not lielieve it would be necessary at that stage to file 

 amended returns. It might become desirable later, but I do not think it 

 would be worth while at that time. 



In answer to a question. Major Mason said that 1919 returns would 

 probably be due before the questionnaire was fully worked out and settled. 

 It was suggested, however, that the 1919 return can be made out on the 

 basis of revision of accounts as it is discovered they should be revised in 

 making out the questionnaire. 



Mr. Goodman then again introduced the subject of land as related to 

 the questionnaire, saying there are several questions to be cleared up. He 

 asked if land when under "timber" where there Is expectancy of the tim- 

 ber remaining on the land for an average of ten years from 1013 has 

 the same value as the same kind of land with no timber on it. He further 

 asked if the lumbermen could arbitrarily place an estimated average value 

 on all land. In explanation he said : 



"We have arbitrarily from our knowledge of land put an average esti- 

 mate on it of ^5. Then we have figured that the variation in quality was 

 fully represented by saying some of it is !(2 and some of it is $10 land. 

 Then by the use of an algebraic equation It is easy to figure out how 



much of it would have to be worth $2 and how much ^10 to get your 

 average of $5. Then you check up and recall about how the land lies and 

 look at your map and figure out that you must have about so much poor 

 land and so much good land." 



He pointed out further that when the land is sold naturally the good 

 land goes first and the poor land must be held. He maintained that it 

 is not enough to say the land is worth an average of so much an acre, 

 but the variation in the different sections must be considered, because if it 

 averages $5 an acre some of it is unquestionably worth so much more than 

 that and some not that much. The buyer will invariably pick out what 

 he considers the best, and as it is thus necessary to have a sliding scale 

 in minil in selling land it is equally necessary to apply a sliding scale of 

 prices in valuing land on the questionnaire. 



Mr. Goodman pointed out that the lumbermen know better now how 

 to classify their land than they did in 1913, as they have learned from 

 farming results and from scientific investigation what the different lands 

 are worth. He maintained that the average value per acre multiplied by 

 the number of acres is a fair way to control the values in the question- 

 naire as in 1913 large tracts of cut-over lands were easily purchasable, 

 and there has all the time been plenty of actual purchase and sale evidence 

 in regard to land of this character. He said that to establish the land 

 values in 1913 those values will be supported by actual sales of land for 

 a six years' period, three years before and three years after that date. 

 Mr. Von Platen pointed out that there is a difference in the mental 

 processes of valuing timber and cut-over land by the lumbermen. He 

 stated that the lumberman is interested in the lumber business and is not 

 a land man, and desires to sell his land as soon as possible. Therefore, 

 the only fair way is to consider values on the basis of actual sales. 



Major Mason recognized the validity of this position on the part of lum- 

 bermen, but suggested further consideration from another angle. He said 

 that a modern sawmill is not any good without a good sized block of tim- 

 ber, whereas a farmer can operate on a successful basis with a small tract 

 of forty, fifty or one hundred acres. Therefore, the land is most valuable 

 when it is sold in small chunks. 



Major Mason further emphasized that the value they are seeking to 

 arrive at for timberland is not tlie figure at which a successful operator 

 who has no need for selling and is perfectly able to hold onto his property 

 would consider, but a fair and reasonable figure which the lumberman 

 might reasonably reckon the land is worth to him. 



Major Mason continued as follows regarding the question of entering 

 land valuations : 



Now, about the land : I think it is entirely proper in so far as the 

 questionnaire goes itself, quite acceptable to the Treasury Department to 

 have you lump all your laud together and put an average price on it, but 

 if you do that when you come to sell it that average price Is your best 

 price of which the additional amount realized is income. If It Is classified 

 it should be set up on .vour record, as the questionnaire points out, show- 

 ing which land is the .$10 land and which Is the $15 land, etc., in order 

 that it may be identified later In connection with the sales. 



A Lumberman : 1 would like to ask one question herej Here is an 

 extreme case : Suppose a company has ten thousand acres of cut-over 

 land, $5 an acre average, and they sell forty acres at $10 an acre, there 

 is an apparent profit of $200 on that forty. Must that be returned to 

 the Government as a profit in the year in which it was sold, or can you 

 treat the whole account as one account and then after you have sold 

 enough to take care of the land at $5 an acre, everything over that would 

 be your profit V 



Mr. Mason : It would be returned as profit in the year In which sold. 

 Question : There is another point that I don't think has been covered. 

 .\fter you sell a forty It is not really sold until it is paid for. Now, our 

 company is selling a lot of cut-over land and we sell in forty and eighty- 

 acre tracts, and we give them as much as ten years on the land. Suppose 

 you sell a forty of land for $500 and the man pays you $50 down and you 

 take his note for nine years at $50 a year ; he makes that first payment 

 and you return the difference lietween what you sold that land for and 

 what goes on the books as profit. 



Major Mason : Where a taxpayer sells some land and receives pay- 

 ment in full of course there is no question at all but that he should 

 return the profit as of that year. Supposing he docs not sell for complete 

 payment the first year, but be does sell In such a waj^ that there is a ver.y 

 large initial payment, and the other payments are well secured. In that 

 case It is also treated as a sale as of that year In which the proceeding 

 is iuitiated. But if the land is sold on what you might call the install- 

 ment plan, where there is a small payment down, and a series of small 

 payments, and the security Is the land itself, the title of which propert.v 

 still vests in the seller until payments have reached a certain stage or 

 have been completed, in that ciise it Is not treated as a completed transac- 

 tion in the year In which made, but these payments are apportioned 

 through a series of years and the profits in the same way. If finally 

 the man fails to take over the land, there is an adjustment m.ade iu an 

 equitable manner, but the distinction is between the complete transaction 

 in a given year and these installment sales. 



One lumberman raised the question that it would be a big job to keep 

 all records of in<lividual transactions involving sales of cut-over lands on 

 the installment plan separate. Some purchasers will fail to complete their 

 payments and eventually foreclosure proceedings must be Instituted to 

 take the land back. Others will go through with the deal. This man said 

 that all these accounts are kept under one head. 



It was suggested that as he keeps total receipts from land sales each 

 year that that would be the basis of the accounting. 



He then asked the question as to how to define profits that came In on 

 those receipts. 



Major Mason : You really have a separate account with each person 



with whom you are dealing, and those accounts have to be treated and 



, ' kept separately in your records and treated separately from income tax. 



Mr. Goodman : Yes, the way you keep the amount apportioned so much 



as interest and so much as taxes separate from what is payment on the 



land. And a certain proportion of what is payment on the land Is profit. 



