October 10, 1919 



HARDWOOD RECORD 



Supplement 



If It costs you $5 and you sell for $10, then halt of every laud payment 

 LS so much profit. 



The Lumberman : Yes. but you haven't got It yet. 

 Mr. Coodman : No, what you get. 

 The Lumlicrman : Oh, half of what you get? 



Mr. Goodman : Yes. Now. Mr, Mason has made a statement here that 

 I would like to plead with him a little about, and that is this ; He says 

 if we put the average value of our land on at a certain amount and then 

 sell our good land and deduct only that average value, if that process is 

 kept up there will be a time when we are selling our land at a loss. Now, 

 the mere fact we have not been able to go to the expense of plotting out 

 the poor land from the good land and it is mixed in like corn heet hash. 

 As you .saw when going through some of the land, there would be a place 

 where the glacial deposits had left a lot of rocks and over In the next 

 gully, or perhaps a mile or more, there would be land with no stones in it, 

 that makes the difference in our case between the $2 and .$10 land. If 

 we were to undertake to classify that it would mean a survey, but we are 

 very certain that the general value is .f.5 and we are equally certain some 

 of it is worth $10. and we are willing to take a chance on the amount 

 worth $2 by a natural mathematical formula, for there can only be a 

 certain proportion of it worth $10 and another proportion of it worth $2. 

 Figured out on an average would mean about eight thousand acres in 

 forty thousand acres at $10 and thirty-two thousand at .$2, so that when 

 you get up above the average it means a whole lot more at the low aver- 

 age. Now, you don't mean for us to take into consideration the fact that 

 when we sell that land we classify it when we sell it and offer it to a man 

 for $5. That means it originally could only have been worth $2. It we 

 offer it to him at .$25 the supposition is that en bloc in 1913 it was worth 

 $10. Is that a fair assumption or w-ould you throw that out because we 

 are not showing the map where the land was? 



Major Mason : We are not asking for a map, but the questionnaire 

 asks to set up in your books. 



Mr. Goodman ; Yes, I assumed we W'ould have to tell how much of each 

 glass. 



Ma.1or Mason : It also asks for description. 

 Mr, Goodman : Well, we can describe it. 



Major Mason : I do not mean description of what kind of land it is, 

 but legal description of the land. 



Mr. Goodman : Well, we couldn't do that ; I don't think any one of 

 us is in shape to do that. 



Major Mason : We had some talk over that in the Washington meet- 

 ing. 1 forget whether you were there at that particular time, but It was 

 felt at that meeting, in fact it was stated by some of the people repre- 

 sented there, that they had actually classified their land and set up cer- 

 tain particular descriptions at certain rates and certain other descrip- 

 tions at certain other rates, and their accounts showed that we did not 

 want all that data in the questionnaire, but available in your records if 

 you set up the different values. We felt that was really the method by 

 which you arrived at your total or average land values, if you said you 

 had C.OOO acres at one time and 10,000 at another the average was so 

 much, but you haven't that data and can't give it without a survey I would 

 put it in as you suggest. 



Mr. Goodman : We can Indicate it to a certain extent. We can every 

 one of us indicate on our maps the regions in which the best land occurs, 

 and the poor, but there would be exceptions to that, because there may 

 be some very good land running through barren land. 



A Lumberman : I would like to ask a question : Is it the Intention of 

 the questionnaire to establish the value of land, or just a question of estab- 

 lishing the value of the timber holdings? 



Major Mason : Calls for the same information in regard to land as 

 timber. 



The Lumberman : Do I understand the Act calls for the setting up of 

 the value of land en bloc, as well as timber, or does this apply only to 

 the timber? 



Major Mason : The depletion applies only to the timber, but at the 

 same time you take the land value. 



The Lumberman : My Idea was that the land was separate from the 

 timber altogether, and it was not necessary to set it up on your hooks 

 as of value to March 1, 1913. at all, but only the timber which is being 

 depleted shall be set up en bloc on your books, that when you come to 

 the sale of a piece of land you report just the sales made during that year 

 and place upon them at that time the value as of 1913. 

 Mr. Goodman : No. 



The Lumberman : Well, I don't know as there is anything In the Act 

 calling for the setting up of the value of land, or in the regulations. 



Mr. Goodman : There is nothing In the Act calling for the setting up 

 of any values, but it is the heart of the basis of all of the treasury 

 decisions and all of the regulations, as I understand it. and if Mr. Mason 

 could explain that, just what the authority is for asking us to set up in 

 full. Now, if we have to set up in full for depletion, the .same necessity 

 exists for us setting up any capital asset we wish to deduct in the liquidat- 

 ing transaction. 



Mr. Mason : Of course, timber is in a little different category than 

 land. 



Mr. Goodman : No difference at all, because as you sell the land you 

 are depleting your land account just the same as when you cut the timber 

 you are depleting your timber account. 



Jfr. Mason: The same way with mines, etc., too. That js why there is 

 a distinction made between timber and land. 



Mr. Durant: The amendment says when there is any land sold sub- 

 sequent to March 1, 1913, the value as of March 1, 1913, shall be the 

 determining factor. 



Major Mason : Absolutely, but does not say when to set that up. 

 Mr. Durant : No, no part of the Act says when to set it up. but the 

 idea is to set it up and have it determined so when you have sold in the 

 one instance you will be able to say you have made a gain or loss, and in 

 the event of' cutting timber or a wasting industry you will be able to 

 charge your operations with depletion account. 



Major Mason : Yes, you can do that when you sell it. 

 Mr. Goodman : Then'l will ask you this: Y'ou report the fair value of 

 your assets in your capital stock return, don't you? 

 Major Mason : Yes. 



Mr. Goodman : Do you put in your adjustment column the value of 

 your land ? 



Major Mason : Yes, put in the fair market value of the land. 

 Mr. Goodman : Whatever you have it on your books? 

 Major Mason : No. put it in the readjusted value. 

 Mr. Goodman: Is that satisfactory? 



Major Mason : I would like to say here again what I said yesterday, 

 that I haven't been in the Treasury Department for such a very long 

 time yet. and there is a very large mass of law and regulation and one 

 thing and another for a man to absorb before he becomes expert at it. 

 and there are very few men in the department who are very thoroughly 

 expert on all of it. even though they have been there a long while, and 

 I was taken in there on account of my knowledge of timber rather than 



my knowledge of law and regulations, and I am sorry to say I have not 

 absorbed anywhere near as much yet as I would like to, biit I hope to 

 before long, both the law and the regulation, so that things I say here 

 will have to be taken with the understanding that I am not thoroughly 

 familiar with all these things I am asked to tell about. In the ease of 

 the questionnaire I think I can tell you, but in the ca.se of some of these 

 regulations, such as the one brought up yesterday, I am not at all sure 

 about it. I have my own opinion, out, of course, that is not the same as 

 regulation by a long sight. Now. on this particular question I will refer 

 you to Article 216, which is found quoted on page 31 of the questionnaire, 

 about in the middle, requiring that : "Every taxpayer claiming and mak- 

 ing a deduction for depletion and depreciation of mineral property shall 

 keep accurate ledger accounts in which shall be charged the fair market 

 value as of March 1, 1913, or within thirty days after the date of the 

 discovery, or the cost, as the case may be," — (of course, the discovery 

 does not apply in the case of timber — ) "in the case of property or plant 

 or equipment." Now, that particular article was drawn in reference 

 to mines, but it also applies to timlier lands and requires the setting up of 

 the value of the timber and the property in general. There is no regula- 

 tion covering land as separate from the timber, although when we came 

 to work on it it was obviously necessary to separate the two. There is, as 

 far a.s I know, no regulation which specifically requires you to set up the 

 values over the land as such, although it is, I think, very desirable. Some 

 companies have found it necessary to have that done, but you practically 

 do set it up when you separate your values. You have to set up the 

 value of the total property and timber separately, but by the estimate you 

 get there you have practically set up your land values. This question 

 you bring up of claiming a certain value as of March 1, 1913, at the time 

 you sell a particular tract, I think it may be handled that way. But It 

 is preferable. I should say, to set it up now if you can, because the nearer 

 you are to 1913 the more accurately you are apt to be able to do it, pro- 

 viding you have data on this land, that is, the values as of March 1, 1913. 

 Mr. Reapbrook : Mr. Chairman, I would like to know how to handle 

 this proposition. It may not apply to a great many other owners who own 

 large tracts of timber, but we have taken the assessed valuation on the 

 various parcels of land which we own and compared It with actual sales 

 made in that same territory and arrived at a percentage which the 

 assessed valuation bears to the selling price during 1913. We have the 

 assessed valuations for that year, it is a permanent record and the per- 

 centage we also have, so that whenever a sale was made, for all the sales 

 made during that year we apply that percentage establishing thereby the 

 value of that land as of March 1, 1913. The diCference between that and 

 the selling price is the profit, and that is reported each year without set- 

 ting up the total value of all the parcels In our books and changing our 

 capital records In that way. Perhaps we have better records for the 

 asses-sed valuations and for each separate parcel than others who own 

 large tracts of barren land. 



Mr. Durant : The purpose is to determine the amount of depreciation 

 that can be charged against the timber because of wasting it in cutting, 

 that is. the loss of capital assets in cutting over the land. The only 

 possible benefit you could get by setting up the value of your land at any 

 specific time would be to enable you to produce evidence satLsfactorv to 

 the department showing that In sales, or a series of sales made subse- 

 quent to March 1. 1913, you had made a gain or sustained a loss. That 

 Is the only possible way. It is a great deal like the purchase and sale 

 of capital stock, or stock, or of buildings, but in the case of your timber, 

 as I understand It, the theory of the Act Is to establish as a value as 

 of March 1, 1913, not only to determine the amount of gain you have 

 made in the operation by the liquidation of your assets, but also in charg- 

 ing against capital account the amount of depletion that has occurred 

 through the cutting of the timber which is the capital of the lumber 

 company. 



Mr. Mason : And to take care of the growth. 



Mr. Durant stated that the questions of depletion of timber cutting 

 and growth of new timber are entirely separate items. lie maintained 

 that in filing the information In order to take the benefit of depletion it 

 is necessary to establish values as of March 1, 1913, and then as of 1,000 

 feet of timber is cut It is charged against the capital account as that 

 much depletion. 



iMr. Goodman said that on the other hand if lumbermen succeed in 

 getting Invested capital through a decision that no act of taxation can 

 hinge on the earnings of the property before March 1, 1913, It might be 

 of great benefit to have the books show the land valuation. 



Mr. Goodman : Now, was there anything you wanted to say about any 

 effect of the timber being on the land ? 



Major Mason : If you raise that question I should say this way : Of 

 course, it is true that if you have got some land that is all cut over and 

 ready for sale now, it Is a ready asset, and If you have got some land that 

 simply acts as a storage place for standing timber which you do not 

 intend to cut for fifteen or twenty years. It is not a ready 'asset. You 

 cannot sell It to anybody except for speculative purposes on their behalf, 

 because they cannot do anything with it. and you Intend to bold the tim- 

 ber, and the value in that sen.se is different. Rut there is also this to be 

 taken Into consideration ; That the Treasury Department has not under- 

 taken to figure or compute interest on these different Investments : that 

 is. in the case of timber, to value It b,v sa.ving that .you are going to get 

 so much for the stumpage : that you are not going to get this stumpage 

 right now, and that the value of March 1, 1913, was the future value, 

 the discounted value, discounted back to that date. The department has 

 to undertake to handle the thing in a simple wa.v without taking the 

 Interest calculations into account, and I should sa.v would deal with 

 the land in about the same fashion, treating the land as of about the 

 same value as regards to whether it is clear or has timber standing on It. 



Jlr. Von Platen expressed himself as believing that land with timber on 

 it Is worth more to the lumbermen than without, as It Is in vogue, so to 

 speak, that is, having more ready sale. Thus when the land is sold with 

 the timber on and the timber Is not to be cut for ten years the timber 

 owner will pay the tax on the land as long as the timber remains and the 

 land purchaser b^lying the land for future use does not have to pay the 

 tax, which is quite a percentage of the carrying charge. Thus the land 

 buyer has only to pay the $S or $10 an acre he is paying for the land, and 

 thus in ten .vear.s from the date of sale when the land is going to be worth 

 a great deal more, he gets the entire benefit without carrying charges. 



Major Mason expressed as his belief that higher values could be derived 

 for the cut-over land if It were cut up in small parcels for Immediate 

 use by smaller settlers. The other land sales, he said, are to people buying 



