The report of the trustees for presentation to the association showed that the total membership of the association excluding duplications is one thousand and seventy-four.

The treasurer's report showed a balance on hand on September 11th of $6,528.97 compared with $4,223.25 at the beginning of the last fiscal

year.

The report of the budget committee showed estimated revenues $10,540.00, expenses $9,926.09.

On Monday afternoon a reception was held by the ladies of the entertainment committee. Madame Carrie Bridewell very generously sang for the visitors and made the reception one of the most notable events of the convention.

On Tuesday morning the meeting was called to order at 9:30 and Secretary Redfield of the department of commerce welcomed the delegates in a speech of great ability and exceptional interest. The reply to the address was delivered by the retiring president, R. H. Montgomery. The committee on credentials reported the delegates whose credentials were in order and the convention proceeded to business.

Two amendments to the constitution and by-laws were adopted without discussion. These amendments are as follows:

CONSTITUTION-ARTICLE II, SECTION 7

Strike out the third and fourth lines, ending with the word "trustees," and substitute "the secretary thereof shall report such member to the secretary of this association, provided such member shall possess the qualifications necessary for his admission as a fellow to this association, but not otherwise, unless such member shall himself request that he be admitted as an associate; and upon his election by the board of trustees such member"

BY-LAWS-ARTICLE V, SECTION 4

Make the present section 4 paragraph (a) and add paragraph (b) as follows:

"No dues shall be required to be paid by any state or district society for those of its members who may not be entitled to become society fellows of this association, unless at their own request they shall become associates of this association."

After luncheon the delegates and visitors were taken in sight-seeing cars through Georgetown, Fort Meyer and Arlington, returning to Washington at 4 o'clock to hear a paper on Accounting Conditions and Prospects delivered by Charles G. Du Bois, comptroller of the American Telephone and Telegraph Company. Discussion of this paper was led by Carl H. Nau of Cleveland.

After the discussion Elliot H. Goodwin, secretary of the Chamber of Commerce of the United States of America, spoke on the subject of the national chamber and its importance to American business interests.

In the evening an informal discussion on income tax questions took place. Mr. S. H. Boyd of the treasury department presented the government's views in regard to questions raised.

On Wednesday the convention reassembled in business session at 9:30 a. m. After some discussion it was resolved that the next meeting of the American Association should be held in Seattle, Washington, at the invitation of the Washington Society of Certified Public Accountants.

The meeting then proceeded to the election of officers and the following were unanimously elected: President, J. Porter Joplin, Illinois; treasurer, Carl H. Nau, Ohio; trustees for three years: R. H. Montgomery, Pennsylvania; E. W. Sells, New York; W. F. Weiss, New York; auditors, W. R. Mackenzie, Oregon, and E. G. Shorrock, Washington.

In the afternoon the delegates and visitors visited Alexandria and Mt. Vernon, Virginia.

At 8 p. m. Professor John C. Duncan, of the college of commerce, university of Cincinnati, read a paper on Some Scientific and Educational Problems of the Accountancy Profession. The discussion was led by John B. Geijsbeek, of Colorado. Later in the evening Harvey S. Chase, of Massachusetts, read a paper on National Finances. Both papers were followed by interesting discussions.

Thursday morning the final business session took place and the new officers were installed. At II o'clock, the incoming board of trustees met and elected A. P. Richardson secretary and the following members of the executive committee: W. Sanders Davies, R. H. Montgomery, E. W. Sells, E. L. Suffern and W. F. Weiss.

At 2:15 the delegates and visitors were received by President Wilson in the East Room of the White House.

After the White House reception the party left for Annapolis in special cars. Various points of historic interest were visited and the grounds and buildings of the naval academy were open to the delegates. At 7 o'clock an informal dinner was held at Carvel Hall, Annapolis. This was a departure from the usual banquet but was generally approved by all those who were present. There were no formal speeches but remarks were made by the toastmaster, R. H. Montgomery; the new president, J. Porter Joplin; Captain Fullam, U. S. N., and W. P. Hilton, representing the entertainment committee.

Income Tax Department

EDITED BY JOHN B. NIVEN, C.P.A.

In elucidation of T. D. 2005 published in last month's JOURNAL wherein the treasury department gave its interpretation of what should be deducted for loss in a return of income for income tax purposes, a separate explanatory letter has been addressed to the collectors and internal revenue agents on the subject in which the department expressly extends the principle applied in arriving at losses, enunciated in T. D. 2005, to profits arising from the same source. This letter has not yet been issued in the official weekly publication of the department, but a copy of it has been obtained and is reproduced this month in THE JOURNAL along with the official rulings.

It is gathered from the rulings and the letter just mentioned that the department will not allow as a deduction any amount under the heading of depreciation, except only a reasonable allowance in respect of depreciation on buildings, fixtures and other physical assets. In the case of all other assets, including unimproved real estate, bonds, stocks and like securities, the department apparently in no circumstances will allow such a deduction to be entered in the return; and even the fact that the amount has been charged to income on the books of the individual or corporation will not affect the situation. The asset must have been actually disposed of before the depreciation or appreciation in valuedeterminable only upon the basis of the difference between the cost and the selling price-can appear in the income tax return as a profit or loss as the case may be.

It may be that this method will be satisfactory where there is a short interval of time between the purchase and the sale of the assets; but where the assets are held for extended periods the proposed method is not likely to work without some difficulties especially in those instances where the practice obtains of adjusting the values on the books from time to time to bring them into conformity with the market prices.

That, however, is not the most serious aspect of the question. The department expressly rules that, where the property was acquired prior to March 1, 1913, in the case of individuals and prior to January 1, 1909, in the case of corporations, the difference between the cost and selling price will be prorated over the whole period during which the property was held and the proportion applicable to the entire taxable period will be taken into account in the annual return of income for the year in which the property is realized. Such a method would certainly be a rough and ready one of arriving at a figure to represent the profit or loss on the property since the commencement of the taxable period, but in no circumstances, except by a happy chance, could it be said that the figure thus arrived at even approximated the true amount of such profit and loss. Some legal authorities maintain that the law could not

be made retrospective and that it is illegal to tax the income of an individual prior to October 3, 1913, the date when the act was promulgated; but, whether there are any grounds for such a contention or no, it is conceded by all that the law does not authorize the taxation of income, so far as individuals are concerned, prior to March 1, 1913, or, so far as corporations are concerned, prior to January 1, 1909. Under the method which has just been referred to, the taxpayer will in many cases be paying a tax on profit made prior to the taxable period. For instance, in the case of property purchased by an individual during the panic of 1907 on the basis of the prices then prevailing, the value of which might have practically doubled at March 1, 1913, if the property were to be disposed of at the present time there is no doubt that, while the price obtainable might be considerably in excess of the cost in 1907, it would be less than the price which would have been received had the sale taken place in March, 1913. Still, with an obvious depreciation in the asset since the commencement of the taxable period, the taxpayer would, under the department's ruling, have to pay tax on an alleged profit since that date. Many similar cases could be cited to prove that in following out the ruling, taxpayers would be forced to pay taxes for which there was apparently no legislative sanction.

Generally, and particularly as regards bonds, stocks and like securities, it is comparatively easy to fix the value as at March 1, 1913 and where that is possible it is obvious that that value should be the basis for determining the profit or loss for income tax purposes. In instances where it is impossible to arrive at the value as at March 1, 1913, it may be that a fixed rate for determining the profit or loss will be satisfactory in many cases; but to apply such a method to all cases would be a rough and ready treatment of the matter and would tend to show a lack of that administrative consideration with regard to detail which we are entitled to expect. It is beyond doubt unnecessary, and its legality may be open to question.

The difficulty which would confront the department in applying this ruling to profits or losses on securities received by persons making returns, in reorganizations effected prior to March 1, 1913, as compared with the facility which would result from the use of market values at that date, will at once be apparent.

The subject-matters of the various rulings which are also printed this month are as follows:

T. D. 2011 deals with commissions on renewal premiums on insurance, and states that such commissions are income if received subsequent to March 1, 1913, even though the premiums were on business written prior to that date.

T. D. 2012 extends to non-resident aliens the use of exemption certificate 1063 for claiming exemption on dividends payable in United States from stock of foreign corporations.

T. D. 2013 provides for the return of income of a non-resident alien and the payments of the tax, normal and additional, being made by the

person, firm, company or other body in the United States having control of his income from a trade or profession or otherwise.

T. D. 2015 contains the intimation that in cases where, through ignorance or misunderstanding, penalties have been incurred because of failure to make returns within the prescribed period, the department will accept offers in compromise of the penalty as follows: $5.00 from individuals and $10.00 from corporations organized for profit. Where the corporation is not organized for profit, it has until December 31, 1914, to file without penalty.

T. D. 2016 prescribes the rules and regulations, signed by the secretary of the treasury and approved by the president, upon which the returns under the income tax law will be open to inspection. In pursuance of the powers devolving upon him by the law the regulations are published in the form of an executive order by the president.

As regards the returns of individuals, they are not available for inspection at all except to the proper officers and employees of the treasury department.

The returns of corporations are not quite so inaccessible. In the case of corporations whose stock is offered for general public sale, the returns are open to the inspection of any person upon application to the secretary of the treasury. In other cases the returns are only open to stockholders after proper application to the treasury, which has to be accompanied by a certificate by the president and secretary of the corporation that the applicant is a bona fide stockholder or failing such a certificate by other satisfactory evidence.

Besides regulations for the production of the returns of both individuals and corporations in legal proceedings, there is a provision for access to the returns, or to abstracts thereof, to be granted to the proper officer of a state which imposes a general income tax. This provision applies to the returns of corporations only.

T. D. 2017 advises that interest and dividends received by non-resident aliens from domestic corporations are not subject to tax whether the bonds and stock be physically located within or without the United States.

TREASURY RULINGS

Mimeograph_letter to collectors of internal revenue and internal revenue agents, of date August 14, 1914.

Referring to treasury decision No. 2005, it will be observed that losses due to fluctuations during a taxable year in the value of capital assets, even though evidenced by book entries, do not constitute such losses "actually sustained" as, within the meaning of the law (Section 2 act of October 3, 1913), may be allowably deducted form gross income. Losses are not actually sustained until, as a result of a completed, a closed transaction, such losses have been definitely ascertained and the amount they represent has irredeemably disappeared from the assets of the individual or corporation.