410 MISC. PUBLICATION 218, U. S. DEPT. OF AGRICULTURE 
methods might be required, or the taxpayer might be given the 
option of electing to follow one or the other. 
The first method of accounting for sustained-yield forests would 
involve a minimum of change from the existing income-tax regula- 
tions. It~equiresa depletion account for each part of the forest which 
constitutes a management unit. This account is built up by the addi- 
tion of capital charges for the establishment, improvement, and 
protection of the trees and is reduced by proportionate amounts as the 
trees are cut, sold, and lost by fire or other casualty. The only 
material change from the present procedure is the requirement that 
all capital expenditures in connection with growing timber be treated 
as capital charges to the appropriate depletion accounts, with no 
option to treat ary part of these charges as current expense. This 
method maintains on the books of account a reasonably accurate cost 
for the existing timber stands. It permits the determination of the 
cost of the particular timber depleted in a given year and thus enables 
an accurate determination of annual income. It takes account auto- 
matically of v arte Ons from the normal in either capital additions or 
depletion. To realize fully these advantages there must be careful 
and consistent accounting, and to check the results at any time the 
review must go back over a long period. ‘The disadvantages of this 
method from the viewpoint of tax administration are that proper 
capitalization of all charges would be hard to enforce and that satis- 
factory accounts would be difficult to obtain from taxpayers whose 
properties were not large enough to warrant the employment of an 
expert accountant. 
The second method of accountitig for depletion in sustained-yield 
forests would regard depletion as not taking place at all where there 
is a regular annual income based on annual fellings of approximately 
equal quantities of timber. The total wood capital in such a forest 
remains undiminished as the timber felled is replaced by growth. 
Since this method allows no deduction for depletion, it is, of course, 
proper to treat the cost of planting as well as of all other cultural 
operations as maintenance expense and to charge it off annually. 
Thus, under this plan, the depletion account is dispensed with, and 
all normal costs of maintaining the forest are treated as annual 
expense. Special provision for capitalization or depletion is necessary 
only in case of abnormal additions to or reductions of the forest capital. 
As will be described in part 11, this second method is the basis for the 
income-tax regulations of the German Reich, where credit for deple- 
tion is allowed only in cases of extraordinary fellings or sales, and the 
cost of planting and other cultural operations is capitalized only when 
these are on a scale large enough to be entirely out of proportion to the 
normal annual expenditures necessary to maintain the forest. This 
method has the advantage of simplicity, though it does not permit as 
accurate a determination of income as the first method in years of 
abnormal development or depletion. 
PROFIT AND LOSS FROM SALES 
The provisions of the Federal income-tax law with reference to 
computing the profits from sales of capital assets, insofar as they have 
any effect on forestry, are favorable. The base from which profits or 
losses are computed is the same as for depletion. However, the rate 
of the tax on capital gain is limited to 125 percent, provided ‘the asset 
