To collectors of internal revenue:

Reference is made to T. D. 2001, relative to the designation by corporations of a fiscal year other than a calendar year as a basis for making returns of annual net income.

You are informed that every corporation amenable to the incometax law in existence at the close of a calendar year is required to file a return covering all or any part of the preceding calendar year during which it may have been in existence on or before March 1, provided such corporation has not established or does not establish a fiscal year.

In order to establish a fiscal year it is necessary for the corporation to give notice to you in writing designating the last day of some month as the close of its fiscal year. This notice must be filed not less than 30 days prior to March 1 of the year in which the fiscal-year period of 12 months closes. A return for that portion of the calendar year preceding the commencement of the fiscal period of 12 months is required to be filed on or before March 1 of the year next following the calendar year of which it is a part, and the return for the first full fiscal year is required to be filed on or before the last day of the 60-day period following the close of the fiscal year.

Example: A corporation desiring to establish its fiscal year as ending on June 30, 1915, must file notice not less than thirty (30) days prior to March 1, 1915, or on or before January 29, 1915. A return for the period January 1 to June 30, 1914, must then be filed on or before March 1, 1915, and a return for the first fiscal year period (July 1, 1914, to June 30, 1915) must be filed on or before August 29, 1915.

That portion of the year preceding the beginning of an established fiscal year is held to be a fractional part of the calendar year; and as the return of a calendar year is not required to be filed until on or before the first day of March next following, there is no provision of law whereby the return covering a fraction of a calendar year is required to be filed earlier than "on or before" the next March 1st, though it is preferred that the return for this fraction shall be filed as early as possible after the close of the period.

The above instructions are supplemental to T. D. 2001, and rulings or decisions heretofore issued in conflict with the foregoing are hereby revoked.

(T. D. 2030, October 13, 1914.)

Exemption certificate provided for use of banks and bankers, either foreign or domestic, claiming exemption from income tax on dividends from stock of foreign corporations owned by nonresident aliens. The following certificate is hereby provided, which may be executed by responsible banks or bankers, either foreign or domestic, for and on behalf of nonresident owners of stock of corporations of foreign countries, for the purpose of claiming exemption from the income tax on dividends from such stock:

Form 1071

EXEMPTION CERTIFICATE-BANKS OR BANKERS, EITHER FOR-
EIGN OR DOMESTIC.

(For the use of responsible banks and bankers, either foreign or
domestic, for and on behalf of nonresident owners of stock of cor-
porations of foreign countries.)

(Give name of foreign corporation.)

(Full description of stock, stating whether common or preferred, or both.)

Amount of dividends, $

I (we) do solemnly declare that the owners of the stock of foreign corporations upon which the aforesaid dividends were declared are nonresident aliens as to the United States and are exempt from the income tax imposed on such income by the United States Government under the law enacted October 3, 1913 that no citizen of the United States, wherever residing, or foreigner residing in the United States, or in any of its possessions, has any interest in said stock and that all of the information as given in this certificate is true and correct. I (we) hereby agree that if at any time it shall appear that the income or any part thereof represented or covered by this certificate was, or is, subject to the normal tax imposed by the United States, upon presentation of proof of that fact to me (us) by, from, or through the Commissioner of Internal Revenue, Washington, D. Č., I (we) will pay and remit to the United States Government the amount of tax claimed to be due; and I (we) hereby further agree that whenever in the judgment of the Commissioner of Internal Revenue it shall be necessary in or to the administration of the incometax law, I (we) will, upon request of said Commissioner of Internal Revenue, disclose and furnish to him the names and addresses of the owners and the amount of the stock aforesaid. Date..

., 191

(Name of bank or banker.)

By...

(Signature of official authorized to sign.)

(Official position.)

(Full post-office address of bank or banker.)

(SIGNATURES MUST BE CLEArly and legiBLY WRITTEN.)

The above certificate shall be in size 8 by 31⁄2 inches, and shall be printed to read from left to right along the 8-inch dimension.

The certificate shall be printed on yellow paper, and such paper shall correspond in weight and texture to white writing paper, 21 by 32, about 40 pounds to the ream of 500 sheets.

The certificate hereby authorized will be printed by the Government and furnished without cost.

Banks or bankers desiring to furnish their own certificates may do so, but the certificate so printed must conform in size to that prescribed above and be printed in similar type upon the same color, shade, and weight of paper as used by the Government.

Sample certificates showing size of type and color of paper can be secured from collectors of internal revenue in their several districts or from the commissioner of internal revenue, Washington, D. C.

Washington Society of Certified Public Accountants

At the annual meeting of the Washington Society of Certified Public Accountants, held on September 12th, the following were elected as officers and directors for the ensuing year: R. D. White, president; H. W. Carroll, vice-president; Eli Moorhouse, secretary-treasurer; E. G. Shorrock and C. M. Williams, directors.

Ralph D. Webb, C. P. A., announces that he has severed his connection with the firm of Temple, Webb & Co., and has opened an office at 630 Security Bank Building, Minneapolis, Minn.

Napier, Jones & Company, chartered accountants, announce that they have opened offices at 722 Standard Bank Building, Vancouver, B. C., and 110 Pabst Building, Milwaukee, Wis.

R. A. Stevenson, C. P. A. and T. H. Evans, C. P. A., announce the formation of a partnership under the firm name of Stevenson & Evans with offices at 524 Ford Building, Detroit, Mich.

Morison, Foote & Co., No. 1 Liberty St., New York, announce that Henry J. Bull has joined the firm which in future will be known as Morison, Foote & Bull.

Whitney B. Flershem, certified public accountant, announces the removal of his office to the Boyce Building, 30 North Dearborn Street, Chicago, Ill.

The Willison Audit & System Company announces the opening of an office at 4001 Jenkins Arcade, Pittsburgh, Pa.

A. C. Hopson, M.A., C. P. A., (Wisconsin) announces that he has opened offices at 733 Fifteenth Street, N. W., Washington, D. C.

Students' Department

EDITED BY SEYMOUR WALTON, C. P. A.

AVERAGES AGAIN

The following letter explains itself:

"Dear Sir:

"New Britain, Conn.

"Herewith is a question for your consideration, which I trust you will answer in your next publication.

"If a corporation operating a plant of forty (40) separate departments, and the aggregate overhead charge averages 100 per cent, in figuring on a quotation which requires several operations, in as many different departments, where the individual overhead charges are 35, 65, 125 and 300 per cent, should each departmental overhead be added to the direct labor cost in that department, or should an average be struck for the four departments and added to the total direct labor charges, or would you use the flat overhead of 100 per cent? "Thanking you in advance, I am,

"Very truly yours,

ANSWER

"J. O. WILLIAMSON.”

As has been already said in this department, comparative averages cannot be relied on, unless the conditions are virtually the same. Where the products of a factory pass through several departments on the way to completion, the relation of overhead expense to the direct labor in each department may remain constant, and for the sake of argument, it may be assumed that this will be the case. If the factory is making only one class of goods that are all alike, a very accurate average can be determined upon, which will be sufficient for all practical purposes. Such a factory would hardly have as many as forty departments. It must be assumed that the one in question is making a great variety of goods, and that it is next to impossible that each class of the output shall employ the same relative amount of direct labor in each and every department that every other class does. But since the basis of calculation of the overhead expense is the direct labor, any variation in its relative proportions will correspondingly change the proportions of the departmental overhead and therefore the average of the total overhead expense. The total of the overhead charges for the four departments quoted is 525, an average of 1314. In the case of an article that requires an equal value of direct labor in each department, this average will hold for any number of those same articles, thus:

Dividing $21.00 by 16, we find, of course, that the total overhead is 1314 per cent of the labor. This result will not be changed however large or small the labor charge may be, provided it remains the same in all departments. But if there is a serious change in the relative amounts paid for direct labor in the four departments, the average of 1314 may be far from correct. If the labor cost is doubled in department D alone, it will make an entirely different percentage, thus:

Dividing $33.00 by 20, we find an average overhead percentage of 165, which will be the same whatever the labor cost, provided the relative proportions of one, one, one and two prevail in the respective depart

ments.

Reliance on averages when there is no certainty that the conditions on which they are based are themselves reliable is apt to lead to as great a departure from the truth, as a certain awkward squad of recruits once made from a straight line of march. The sergeant had instructed the file closer to keep the flag staff in the middle of the parade ground always in line with some object beyond it. The line of march was a decided curve, which was explained when it was discovered that the second object chosen was a man walking across the further side of the parade ground. It is always necessary to know that our bases of comparison are at least moderately stable before we can depend on any general results.

The only safe way is to calculate the overhead expense in each department on each class of article, and even then it must be remembered that, since much of the overhead is constant, whatever the volume of business, the percentage to direct labor, which varies with the quantity made, will be reduced in each department with an increase of output, and will be increased with a reduction of output.

The following letter is apropos to this subject and brings out very clearly and forcibly the fallacy of relying on averages where the conditions are not the same:

"Dear Sir:

"New York.

"In his recent article on 'Averages' Mr. Seymour Walton, C. P. A., gives practical information of a kind that seldom appears in accountancy literature. The writer does not remember having seen the subject treated before except in statistical works and periodicals.

"An understanding of its fundamental principles, is, nevertheless, often essential to correct accounting practice.

"Even in the statement in percentage form of the figures contained in a simple trading and profit and loss account, a method very frequently employed by accountants to simplify the figures of an account and make them more easily understood-the fact that such percentages are aver