there shall be allowed a reasonable deduction for the amortization of such part of the cost of such facilities or vessels as has been borne by the taxpayer. This allowance may not again include any amount otherwise allowed under the Revenue Act of 1918 or previous laws as a deduction in computing net income. At any time within three years after the termination of the war with Germany, as fixed by proclamation of the President, the Commissioner of Internal Revenue may, and at the request of the taxpayer must, re-examine the return and if he then finds, as a result of the appraisal or from other evidence, that the deduction originally allowed for amortization was incorrect, the income tax and war-profits and excess-profits taxes for the year or years affected, will be re-determined, and the amount of tax due upon such re-determination, if any, must be paid upon notice and demand by the collector. The amount of tax overpaid, if any, will be credited or refunded to the taxpayer.52 Claims for amortization must be unmistakably differentiated in the return from all other claims for wear, tear, obsolescence, and loss. No such claim will be allowed unless it is reflected in any accounts submitted by the taxpayer to stockholders and in any credit statements by the taxpayer to banks, and is given full effect on his financial books of account. If Government or other contracts taken by the taxpayer contained recognition of amortization as an element in the cost of production, copies of such contracts shall be filed with the taxpayer's return, together with a statement and description of any sums received on account of amortization and the basis upon which they were determined. In any case in which an allowance has been made for amortization of cost the taxpayer will not be allowed to restore to his invested capital for the purpose of the war-profits and excess-profits tax any portion of the amount covered by such allowance.53

PROPERTY THE COST OF WHICH MAY BE AMORTIZED. The taxpayer may make a reasonable deduction from gross in52 Revenue Act of 1918, §§ 214 (a) 9, 234 (a) 8.

53 Reg. 45, Art. 185.

come not in excess of a sum sufficient to extinguish the cost of buildings, machinery, equipment, or other facilities constructed, erected, installed, or acquired on or after April 6, 1917, for the production of articles contributing to the prosecution of the present war, and of vessels constructed or acquired on or after such date for the transportation of articles or men contributing to the prosecution of the present war. A deduction on account of amortization will be allowed only in the case of enterprises or projects falling within the class of activities contributing to the prosecution of the present war.54

COST WHICH MAY BE AMORTIZED. The total amount to be extinguished by amortization is the difference between the original cost to the taxpayer of the property and its value to the taxpayer at the close of the amortization period (a) for sale or (b) for use, immediate or prospective, as part of the plant or equipment of a going business, whichever value is the larger, less any amounts otherwise deducted or deductible for wear, tear, obsolescence, and loss. In the case of property the construction or installation of which was commenced before April 6, 1917, and completed subsequently to that date, amortization will be allowed with respect only to the cost incurred on or after April 6, 1917.55

AMORTIZATION PERIOD. The period over which the deduction allowed is to be spread, or during which it is to be amortized, is the estimated period between the date of acquisition or completion of the property and the date upon which either (a) the property will become useless or (b) the taxpayer will be able to earn by operation or use a normal return upon the unamortized cost, whichever date is the earlier.56

METHOD OF AMORTIZATION. The proportion of allowable deduction to be allocated to each taxable year of the amortization period will be, as nearly as may be determined, the same proportion which the net income or profit derived 54 Reg. 45, Art. 181. 55 Reg. 45, Art. 182. 56 Reg. 45, Art. 183.

during such taxable year bears to the entire net income or profit derived during the amortization period from the operation or use of such property.57

REDETERMINATION OF AMORTIZATION ALLOWANCE. Redetermination of the deduction allowed on account of amortization may, or at the request of the taxpayer must, be made by the Commissioner at any time within three years after the termination of the present war, and if as a result of an appraisal or from other evidence it is found that the deduction originally allowed was incorrect, the amount of tax due for each taxable year during the amortization period will be adjusted by additional assessment or by refund.58

INFORMATION TO BE FURNISHED BY TAXPAYER. To obtain the benefit of this provision of the statute the taxpayer must establish to the satisfaction of the Commissioner that the entire deduction claimed and the proportion claimed for any particular year are reasonable. The taxpayer shall also submit a supplementary statement setting forth the following information: (a) a description of the property in reasonable detail; (b) the date or dates on which the property was acquired, and from whom, or, if constructed, erected, or installed by the taxpayer, the dates on which such construction, erection, or installation was begun and completed; (c) evidence establishing the intention of the taxpayer on and after April 6, 1917, or on and after the date of acquisition or the date of beginning construction, erection, or installation, to devote such property or vessels to the production of articles (or, in the case of vessels, the transportation of articles or men) contributing to the prosecution of the present war; (d) the cost of construction, erection, installation, or acquisition; (e) the value of the property after termination of the amortization period; (f) a segregation of property, which will have no value (except for salvage) following the amortization period and of prop

57 Reg. 45, Art. 184.

58 Reg. 45, Art. 186.

erty which will have value after such period for use in a going concern or business; (g) all deductions from gross income otherwise taken or claimed with respect to such property; (h) the computation by which the total amount to be extinguished by amortization was determined; and (i) the computation by which the proportion of the amortization charge claimed as deduction in the taxable year for which return is being made was determined.59

59 Reg. 45, Art. 187.

CHAPTER 32

ALLOWANCE FOR DEPLETION OF MINES, OIL AND GAS WELLS, OTHER NATURAL DEPOSITS, AND TIMBER

The 1918 Law contains a provision for deducting an allowance of a part of the income derived from the production of mines, oil wells, gas wells or any other natural deposit and timber. The same allowance is permitted to individuals as to corporations and is permitted to nonresident aliens or foreign corporations with respect to property located in the United States. The 1916 Law provided for an allowance for depletion in the case of mines, oil and gas wells.2 That law provided, in the case of oil and gas wells, a reasonable allowance for actual reduction in flow and production, and in the case of mines a reasonable allowance not to exceed the market value in the mine of the product thereof which had been mined and sold during the year for which the return and computation were made. The present law does not limit the depletion in the same way but permits a reasonable allowance according to the peculiar conditions of each case. Both the 1916 Law and the 1918 Law permit the allowance for depletion to be based upon the value of the property as of March 1, 1913, or the cost if the property has been acquired since that date. The 1916 Law made no reference to lessees and the Treasury Department ruled that a lessee could claim no depletion with respect to the value of the natural deposit on March 1, 1913. The present law provides that in the case of leases the deduction