plicity. What is actually involved, however, is the valuation as of March 1, 1913, or other basic date, of all the natural resources of the country which are under operation for profit. Most of this property is under the ground and hidden from sight. It might be brought to the surface at varying and uncertain dates in the future, at varying and uncertain costs, and sold on the basis of the market as it exists from time to time in the future. The quantity of property can in but few cases be measured. It can only be approximated, and its value, based upon these uncertain factors, must be reduced to a present sum which, in theory, will be paid by a willing purchaser to a willing seller. The valuation of the railroad properties of the country has been under way for years, and that problem is easy as compared with the valuation problems incident to the calculation of the allowance for depletion. In view of the time that has been consumed in the valuation of the railroads, and in further view of the much greater difficulty encountered in valuation of natural resources, it is apparent that in the time at its command the bureau of internal revenue cannot do better than make a very rough approximation of the value of natural resources. Either the taxpayer is deprived of a part of a deduction contemplated under the law or the Government fails to receive revenue to which it is entitled. Mistakes are inevitable and may run into large figures, and inequalities in the taxing of different individuals and companies are bound to occur."

The new provision in the 1926 law permitting taxpayers to take 271% of the gross income from oil and gas properties as their annual depletion allowance on account of such properties will, no doubt, make things simpler for both taxpayers and administrative officials. But 27% of the gross income is an arbitrary amount which can have no relation to the proper allowance. If it happens to benefit a taxpayer to make use of it, he will derive an unfair advantage. If it does not benefit him, he will have to make his valuations.

It is probable that the British law in respect of wasting assets will remain substantially as it now stands. The

British feeling for practical efficiency in the income tax, even at the sacrifice of theoretical perfection, will prevent any very great extension of the present allowances for income from wasting assets, certainly, at least, until a much stronger demand for such extension exists. Quantitatively, the difficulties would be less in Great Britain, since mineral deposits are not as extensive nor as valuable as they are in the United States. But, on the other hand, the difficulties would be just as great in kind, for, while the factor of valuations as of March 1, 1913, would not come into play, still it would be necessary to fix some date from which the allowances would commence, and this would involve valuations as of that date.

The necessity for selecting a date from which allowances for wasting assets should commence is a serious obstacle in the way of any extension of such allowances. Obviously, the taxpayers who purchased wasting assets before the war brought about the tremendous increase in income tax rates, are the ones most in need of allowances, so that if justice is to be done the date selected cannot be a recent one. But how far back should it be placed? No matter what date is selected there are sure to be inequalities and hardship. If individual cases of hardship are to be provided for, the result will be a law even more complicated and hard to administer than any general grant of wasting assets allowances would make it. In the case of mineral properties there is a feeling in Great Britain that they are the appropriate objects of specially heavy taxation rather than generous treatment. This feeling is due to the fact that in many cases the owners are extremely wealthy men who have inherited the properties and derive enormous sums through royalties.

Great Britain has not the advantage the United States possessed in starting an income tax with a clean slate. We can safely assume that, where wasting assets are concerned, capitalization of the income tax has taken place to a great extent, but to just what extent in the case of each present owner it is impossible to state or find out. The proper course would seem to be a gradual extension of allowances

for wasting assets, beginning with those assets as to which they can be granted with a minimum of administrative difficulty. As experience is gained, the number of assets subject to allowances might be increased until eventually the law is completely brought into accord with sound theory.

CHAPTER XIV

BASES OF COMPUTATION AND ASSESSMENT ·

In this chapter we shall be concerned only with the various periods with respect to which income is charged with tax and not with questions of what is to be included in the term "income." Both in Great Britain and the United States income is an annual affair, i.e. (with certain exceptions) it is computed on an annual basis. But when this has been said, we shall make better progress toward an understanding of the periods of computation and assessment if we leave the field of generalities and make a separate examination of this feature of the two laws. The practice under the United States law is much the simpler of the two, and we shall state it first.

The United States.

Under the United States law, income is computed on the basis of a "taxable year." " 2 The term "taxable year" is defined by the law as "the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed. The term fiscal year" means an accounting period of twelve months ending on the last day of any month other than December.3

Mr. Churchill, in his recent Budget speech, has proposed to do away with the three years' average. It is not clear, at present, whether the proposal concerns only that income which is now assessed on a three years' average or whether all income, except that collected at source, is to be assessed on the basis of the income of the year preceding the year of assessment. In any event, the change is not to be made until 1927, and it is thought better to retain this chapter as it was written before the Budget speech was made. It must, of course, be read subject to any changes that the enactment of Mr. Churchill's proposals will make. • Revenue Act of 1926, Sections 210 and 211. 3 Ibid., Section 200.

An accounting period must be a full year of twelve months. A taxpayer may change his accounting period from a calendar year to a fiscal year, or vice versa, but only with the permission of the Commissioner of Internal Revenue. Where such a change is made, a separate return must be made for the period between the close of the old accounting period and the close of the new period, and the income for such period must be placed on an annual basis in accordance with the method provided by the statute. In case of death, dissolution of corporations, etc., a return for a period of less than twelve months may, of course, be required for the decedent or the corporation, but the income in such cases is not placed on an annual basis.

The term year of assessment" is unknown in the United States. Under British terminology we should say that income is computed in the United States on the basis of the taxpayer's income for the year preceding the year of assessment. In ordinary circumstances returns of income must be filed on or before the fifteenth day of the third month following the close of the taxpayer's accounting period. If his accounting period is the calendar year, his return will be due on March 15th. He must, e.g., file a return on or before March 15, 1926, showing his income for the calendar year 1925. If his accounting period ends on March 31st, his return for the period ending March 31, 1925, must be filed by June 15, 1925. Non-resident aliens and certain foreign corporations are given an additional three months in which to file returns. The tax is computed on the basis of the income of one year only, and not, as in many cases under the British law, on the basis of the average of the income of several years.

The return is made for both normal (income) tax and surtax (super-tax) purposes, these taxes being computed, assessed and paid as one tax.

Revenue Act of 1926, Section 226 (c). Income is placed on an annual basis by multiplying the amount of income for the period in question by twelve and dividing by the number of months in such period. The tax will be such part of the tax computed on such annual basis as the number of months in such period is of twelve months.