Chapter 7
PROBLEMS COMMON TO THE PERSONAL
AND CORPORATION INCOME TAXES
A. Revaluation of Assets
1. Analysis of the Problem
Buildings, machinery, and similar long-lived assets that were purchased by a Japanese business firm many years ago are now carried on the books of the company at the original cost price in yen. minus whatever depreciation has been taken since then. Meanwhile a great increase in the level of prices has occurred. The depreciation that is still being subtracted from gross sales each year, in computing taxable profit, reflects only the nominal historical cost of these assets, not the real value of the investment.
The income tax takes a substantial part of the profits thus computed. What is left is likely to be insufficient to maintain the buildings, equipment, and other industrial capital of the community at its present level.
With respect to those assets that were purchased before 1940, the depreciation that may be taken is negligible, in terms of present-day yen. The price level has increased since then by something between 100 and 200 times. In effect, for assets purchased before 1940, practically no depreciation is now being allowed.
It has therefore been urged that business assets be revalued to a common level corresponding to what it would cost to replace them, in the aggregate, in their present condition, at today's yen prices. To this revalued figure, the usual depreciation rates would be applied. A much smaller taxable income would result, or even a loss.
But if concerns are allowed to write up the yen values of their assets in this way, the total yen assets of the concern will of course show an increase of many times over the old values. Is this write-up in value income, and should it be taxed as such? If so, should the tax be levied and collected all in one year?
Such a write-up in yen value would reflect little or no real gain. It would merely reflect a paper gain, due to the depreciation of the yen. In principle, we do not favor including this kind of gain in taxable income, as explained in Chapter 5. But if other taxpayers have already paid income tax under the present and previous laws on paper gains when they have sold their assets, it would not be equitable now to exempt business concerns from all tax on revaluation write-ups. Moreover, the fall in the value of yen has not entitled the holders of fixed money claims, like bonds, to any deduction for their capital losses. Such holders have suffered a capital loss in real terms, but this loss has not been allowed for income tax purposes.
These considerations, taken alone, would lead to the conclusion either that revaluation should not be permitted, or that, if permitted, it should be taxed so heavily that there would be little net benefit in it for the concerns affected. However, it seems that in practice the taxation of paper capital gains in the past few years has been erratic. It may be doubted whether many concerns have in fact paid income tax on the paper gains from assets they have sold in recent years.
Another consideration is the economic effects that may follow from not allowing revaluation, or from taxing it if it is allowed. The cash position of many business firms is not all that could be desired at the moment, and some of these businesses will find it difficult or impossible to raise more cash by borrowing or selling stock. Yet at least some of them will have to do so, if they are to pay a substantial tax on the write-up, or if they are denied depreciation based on the current price level. The tax would probably come largely out of capital.
The income tax is a powerful and adaptable fiscal instrument, but it was never designed to withstand a 200-fold inflation over a 10-year period. What we are confronted with is a case in which the considerations of equity as among taxpayers are badly jumbled, while the economics effects of revaluation are probably, on balance, beneficial. All we can do is recommend a compromise that will avoid the worst injustices and retain most of the anticipated economic advantages.
We are convinced that revaluation is necessary. We recommend that it be carried through promptly for both individual entrepreneurs and corporations, and that the revaluation write-up be subject to a 6 percent tax. With respect to write-up on depreciable assets ("depreciable assets" is to be understood to include depletable assets, in this chapter), the payment schedule for the 6 percent tax should be as follows, one-half to be paid in the fiscal year 1950-51, one-quarter in the next fiscal year, and one-quarter in the third fiscal year. With respect to land and other non-depreciable property the 6 percent tax would not become payable until the property was sold or disposed of by gift or bequest. At that time there would also be included in the regular income tax return any additional capital gain or loss starting from the revaluation value as a base.
The revaluation should be as of July 1, 1949, and the revaluation returns should be filed before September 1, 1950, except that farmers and certain others should be given substantial extension of time as specified in the appendix to this report.
Revaluation is necessary because a thorough reform in administration and compliance under the income tax is necessary. One of the essential steps to such reform is a great expansion and improvement in accounting standards and practice. This aim is unlikely to be achieved if business concerns are told that they must go on depreciating their old assets on the basis of an historical cost that has now become practically meaningless. We do not favor replacement cost depreciation as a general rule. But when a monetary unit has sunk almost to 1/200th of its former value, depreciation based on historical cost can have little significance, and some way of relating depreciation to current price levels is necessary.
Revaluation is also desirable, perhaps necessary, to prevent corporations from losing so much cash in income tax payments that they have no means available for replacing their worn-out assets. Such a loss of cash can result through the limitation of depreciation deductions to the old basis.
But we also believe that it would be granting too much to allow the full revaluation gain to go tax-free, in view of the tax treatment that has been given to those who have already realized taxable gains, and in view of the disallowance of the real losses suffered by holders of fixed-income property.
2. Recommendations
In detail, we recommend:
- a. that all corporations be required to revalue their depreciable assets and land, as of July 1, 1949. The reappraisal value is to be determined by multiplying the cost of acquisition, less depreciation, by the ratio of a general price index for July 1, 1949 to the corresponding index for the original date of acquisition.
- b. that corporations be required to file a complete revaluation return by September 1, 1950, if they are to obtain the benefit of increased depreciation for corporation income tax.
- c. that all land, immovables, and depreciable business assets owned by others than corporations, except government bodies, be revalued as of the same date and in accordance with the same standard given in (a) above. "Others" includes homeowners, and, as to their dwellings and farm buildings, all farmers.
- d. that the revaluations in (b) and (c) be completed by October 1, 1951.
- e. that farm land shall be revalued on October 1, 1952, at the official price as of that date.
- f. that unincorporated business concerns, including farmers and professional men, be allowed to deduct depreciation on the revalued basis, provided that the taxpayer is keeping books in accordance with standards set by the Ministry of Finance, ad indicated by the filing of the income tax return on the blue form.
- g. that unincorporated business concerns, including farmers and professional men, be allowed no depreciation deduction at all, not even on the old base, for the incomes year 1951 and followings, if they do not file on a blue return. This recommendation expresses an intent to favor those taxpayers who keep adequate books.
- h. that the revaluation be carried out through self-revaluation returns filed by the taxpayers, in which the revaluations shall be stated asset by asset. These valuations would be subject to review by industry committees, as explained in an appendix to this report. Industrial representation should never be as much as fifty percent of the membership of any committee. There should be strong representation form the Ministry of Finance and members of the academic staffs of universities.
- i. that the revaluation write-up be subject, without exception, to a tax of 6 percent; but see (p) below, for farm land.
- j. that the 6 percent tax be paid, by corporations, one-half in the fiscal year 1950-51, one-quarter in the fiscal year 1951-52, and one-quarter in the fiscal year 1952-53.
- k. that for other taxpayers payment of the 6 percent tax on depreciable property be made in installments equal to 6 percent of the depreciation on the revaluation write-up. Any balance of the tax, and entire tax on non-depreciable assets, shall be payable when the revalued asset is sold or disposed of by gift or bequest; but see (p) below, for farm land. In no case, however, shall these other taxpayers be required to pay sooner than under the schedule set forth for corporations.
- l. that the revaluation amount shall be the minimum (but not the maximum) figure at which the asset may be appraised by municipal assessors for purposes of the revised real estate tax (former land and house tax).
- m. that the revaluation amount shall be the basis for computing capital gain or loss, as explained in Chapter 5.
- n. that for taxpayers who do not file revaluation returns by the dates specified, the Ministry of Finance shall assign a revaluation figure for each of their assets against which figure there shall be no appeal.
- o. that the revaluation write-up be entered to the extent not needed to offset deficits, on the liabilities side of the balance sheet, as special capital. No distributions shall be made from this special capital for five years, nor shall this special capital be the basis for the issuance of stock. At the end of that period the situation should be reviewed to determine under what conditions distributions and stock dividends from the special capital might be allowed.
- p. that upon revaluation of farm land as of October 1, 1952, the farmer shall have the option of electing (1) to be taxed under paras. i and k above, or (2) to enter the revaluation gain as a capital gain in the return for 1952, or (3) to pay the 6 percent tax at once. In any case, the revaluation write-up on farm land shall be computed as indicated in para. e above.
3. Revenue Consequences
The aggregate increase in value of depreciable corporate assets, if revaluation is carried out completely, will be about 1,000 billion yen (one trillion yen). A tax of 6 percent on corporate reappraisal write-ups would therefore yield about 60 billion yen, if substantially complete revaluation occurred. Considering that, as recommended elsewhere in this report, the excess profits tax is to be repealed in any event, the increased depreciation would still decrease the revenue from the corporation tax, at a 35 percent rate, by 20 billion yen a year for the first few years. This loss would diminish as assets were retired, and might be only half as great some ten years later. The 20 billion decrease is from an assumed 40 billion yield under the 35 percent rate, after repeal of the excess profits tax has decreased the revenue 10 billion.
If one-half the 6 percent tax on revaluation write-ups were paid in 1950-51 and one-quarter in each of 1951-52 and 1952-53, the combined result would be a revenue gain of 10 billion yen in the first year, and a loss of 5 billion yen in each of the next two years. In the fourth year the net loss of revenue would be 20 billion yen, and in the following years the loss would diminish gradually from 20 billion yen a year to zero. Over the entire period there would be a substantial net loss in revenue from the revaluation. Indeed there must be such a loss if revaluation is justified, as we think it is, on the grounds that without it the corporation tax goes far beyond taxing what might be called true net income.
The total tax on reappraisal write-ups of individuals would yield approximately 10 billion yen with an annual loss due to the increased depreciation under the personal income tax of approximately 5 billion yen.
4. The Rate of Tax on the Write-up
The 6 percent rate for the taxation of revaluation write-ups was arrived at, not by a mechanical computation, but by weighing the several reasons for and against any taxation of such gains. The net gain to the taxpayer is somewhat less than might appear at first. Many of the assets have a substantial scrap value, so the remaining depreciation is less than might otherwise be thought. Also, many of the assets are near the end of their useful lives. In general, the taxpayer gains more, the longer the remaining life of the asset. It is necessary to fix a rate of tax on the write-ups that will not discourage revaluation and will also operate as an effective check on over-valuation. We believe that 6 percent is sufficient to check extreme over-valuation, will come about as close as is possible to achieving substantial equity, will provide sufficient revenue to care for the budgetary situation during the transition period, and will not, on the other hand, unduly discourage taxpayers from carrying out the revaluation to reasonable levels.
We have studied the revaluation measures taken under the income tax laws of other countries that have gone through inflation recently. They do not, however, offer very useful guides to procedure in Japan. This is partly because of the size of the Japanese inflation, and partly because it is necessary here to be sure that the revaluation provisions are consistent with and supplement the provisions on capital gains and losses. In Belgium, for example, revaluation was permitted without a tax on the revaluation write-up, but the new value was not allowed to exceed two and a half times the value in terms of 1939 francs. Moreover, revaluation was denied to long-lived office or retail store buildings. The latter restriction has no place in the Japanese program, because of the necessity of consistent treatment when capital gains and losses are taken into account in the event the property is sold. To the extent feasible, we have drawn on the recently enacted laws of France and Italy dealing with revaluation for suggestions, but on the whole we have had to devise provisions that would be more appropriate for the situation as it has developed in Japan.
B. Inventory Profit Tax
At the present time whenever an increase is made in the official prices, under the Price Control Law, a special tax of 66-2/3 percent is levied on the inventory profits of all taxpayers. The remaining balance of the so-called inventory profits is sooner or later included in the net profits subject to personal income tax, or to corporation profits tax and excess profits tax, under the weighted average (average cost) method of inventory accounting, which is the only one allowed for tax purposes.
The inventory profit tax, at least as applied to profits on normal inventory, is levied on nominal or fictitious profits and not on actual economic gain. Its continuance is not consistent with the revitalization of the economy of the country, especially since inventory profits are taxable under the corporation income tax, through the use of weighted average inventory accounting.
Superficially, the inventory profits tax might be considered analogous to the floor stock tax which has been levied in different countries. In general, however, aside from the inventory profits arising from the repeal of a price subsidy, the analogy does not hold. A floor stocks tax strikes the windfall resulting from the imposition of new or additional taxes upon the manufacture or production of selected items of taxation. To allow the manufacturer or the retailer to charge the higher price on his floor stock without the payment of the tax would result in a mere windfall. This real economic gain subjected to tax under the floor stock tax should be contrasted with the fictitious or nominal profits subjected to tax by the present inventory profits tax.
The only merit the inventory profit tax has relates to its imposition on inventories which are in excess of normal working requirements. The difficulties of determining normal inventories preclude its application in that manner. Also, it is not believed that many firms have abnormal inventories at this particular time, at least not through hoarding in anticipation of price increase. It is therefore recommended that this special tax of 66-2/3 percent on the inventory profits resulting from the increase in official prices of inventoried items to be repealed immediately.
But where the increase in price results from a decrease in a price subsidy, there is a sound argument for special taxation of the increase in inventory value. The repeal of a subsidy is tantamount to the imposition of a tax. Consequently, we recommend that at least the 66-2/3 percent tax be continued in effect insofar as the rise in official price can be traced to the removal of a price subsidy. In principle, the tax should be at a 100 percent rate, but it is necessary to allow some margin for error in isolating the causes of the rise in price.
C. Carry-back and Carry-forward of Net Losses
For individuals, hardships caused by fluctuating incomes are to be afforded a certain relief through allowing unusual amount of income or unusual losses to be spread over subsequent years. While corporations are not subject to graduated rates, hardship may be caused here also through having a loss in one year but no income against which to deduct it. Even with individuals, cases may arise where the spreading provisions either do not apply or are not adequate to permit the offsetting against income of all losses and allowable deductions.
Accordingly, we recommend that whenever a taxpayer, whether corporate or unincorporated, shows a net loss for any taxable year, he be permitted to carry this loss forward as a deduction in computing net income or loss for the subsequent year, and to continue to carry the loss forward in this way until it is offset against income. However, in order to prevent abuse of this provision, it should be limited to those taxpayers who are keeping adequate books, as indicated (if they are unincorporated) by their being permitted to file their return on the blue form. Moreover, taxpayers should not be permitted to carry forward any unused personal exemption or earned income credit, since this would place too great a load on the administrative machinery. Cases of actual net loss will be sufficiently infrequent so that it will be possible for the tax officials to check up on returns claiming substantial losses and thus prevent the allowance of unjustifiable loss deductions. But if unused personal exemptions were allowed to be carried forward, this would require checking of vast numbers of small returns which at the time they were filed showed no indication that a tax liability would eventually depend on their accuracy.
But even an unlimited carry-forward of loss may not be sufficient to produce equity in all cases. Many enterprises have a period of substantial losses just before going out of business entirely, and in such a case there would be no future income against which to deduct the tax. Moreover, a carry-forward of loss will bring a benefit to the taxpayer only later, when his need is less acute than at the time the loss is actually suffered. Accordingly, we recommend that the taxpayer also be permitted to carry losses back for two years. This would mean that he would offset the current loss against his income as shown in returns filed for the one of two preceding years, recompute the tax for that year or years, and apply for a refund of the excess of the tax actually paid over the recomputed tax thus found to be due.
By this means a taxpayer going out of business would have at least some tax benefit for losses suffered in the last year or two of his business. Also, persons suffering a loss would be able to obtain some immediate cash benefit at the time when their need for cash is presumably greatest. However, this carry-back must also be carefully circumscribed, to prevent abuse. It should be applicable only when the taxpayer keeps adequate books, as indicated (if the concern is unincorporated) by his being allowed to file on the blue form, for both the year of loss and year to which is carried. Moreover, it would be improper to allow the carry-back of a loss expressed in terms of inflated yen to a period when the value of the yen was much greater. Further, the administrative burden imposed by this change, added to all the other changes being proposed, may make it inadvisable to introduce carry-backs immediately. Accordingly, losses should not be allowed to be carried back to years before 1950, and it may prove desirable to start only with 1951 or 1952. Of course, if a loss is carried back, the same loss must not also be carried forward, and if the taxpayer applies for a carry-back, he should not be allowed later to change his mind and switch to a carry-forward for a given loss. But a loss could be split, part carried forward and part back, if the taxpayer is eligible for both.
Thus limited, the allowance of carry-forward and carry-back of losses should not prove a serious administrative burden, while it should contribute markedly to the equity of the tax and provide a substantial additional incentive for the taxpayer to keep proper books. The administrative burden should be especially light at first, since only the carry-forward will be operative, and this for a comparatively small number of taxpayers. It is the assurance of adequate offsets for losses that may be incurred several years hence that is of most importance in promoting investment in Japan, whether of foreign or domestic capital.
D. Inventory Accounting
The only inventory accounting method currently authorized by the Ministry of Finance for income tax purposes, is the weighted average method (average cost method). On various field trips, random investigation of the books of accounts of various corporations and individuals throughout Japan has generally indicated that there were many irregularities in inventory accounting, particularly for corporate income tax purposes. Many well-recognized methods of valuing inventory exist. (For different types of business different types of inventory accounting are needed to arrive at the best true income estimate of a corporation or individual for a particular accounting period). For some industries, it may be preferable to use the last-in first-out or the normal stock method: for others, it may be preferable to use the first-in first-out. These methods and others that are currently in use throughout the world are recognized as reasonable. Their use in appropriate circumstances should help Japanese taxpayers to improve their accounting systems.
But to prevent abuse and avoidance of tax, it is important to require taxpayers to elect one method or anther and to follow consistently that method thereafter. Only by obtaining the permission of the Ministry of Finance should a taxpayer be permitted to change his method of inventory accounting, once he has made his election. In connection with the request to change, the Ministry of Finance could set forth the conditions upon which the taxpayer would be permitted to change, by requiring certain adjustments in the income account.
It is therefore recommended: (1) that the Ministry of Finance make an extensive study of the different methods of inventory accounting and of those that would be adaptable to the types of industry in Japan; (2) upon the completion of the study that the Ministry of Finance should then either seek legislative authority, or if that were not necessary, issue appropriate ordinances authorizing the use of those methods of inventory accounting which it found adaptable to the Japanese industries which might be used at the election of the taxpayer. The ordinance should provide that, once a method had been elected by a taxpayer, he would be required to follow it consistently until permission to make a change was obtained from the Ministry of Finance.
From studies that have been made, it has been determined that taxpayers are permitted in their inventory accounting to write down the purchase price of merchandise actually purchased during an accounting period. This undervaluation, or discount, is obtained by reducing the purchase price by certain percentages. According to the Ministry of Finance, these rates are as follows:
| Kind or property (if included in inventory) | Percentage rate of reduction | |
|---|---|---|
| Land | 5 | % |
| Building | 10 | |
| Vessels | 10 | |
| Machine | 10 | |
| Equipment | 10 | |
| Merchandise(includes half finished products) | 10 | |
| Material | 10 |
In many instances, it was found that these rates that were set by the Ministry of Finance were exceeded by even 100 percent in determining the amount to be deducted and that even upon audit by the national local tax office, no adjustment was made.
What merit this system might have had when commodities were scarcer and more subject to misrepresentation as to quantity or quality than they are today is not considered here. Under present conditions, in any event, the system now has little or no merit, particularly if reasonable methods for inventory accounting are established by the Ministry of Finance. It is therefore recommended that the Ministry of Finance cease immediately the practice of allowing the valuation of inventory for tax purposes to be based upon the actual purchase price of the property less a certain percentage.
There appears to be no reason why the same principles of inventory accounting should not likewise apply to dealers in securities. Again, the Ministry of Finance has permitted dealers in securities to reduce the value of securities purchased for resale by writing off for tax purposes, in effect, an arbitrary 5 percent of the purchase price. The various method of inventory accounting for dealers in securities should be studied and an appropriate ordinance issued. At the same time, the Ministry of Finance should cease the practice of allowing the valuation of inventory of securities for tax purposes to be based upon the actual purchase price of the securities reduced by 5 percent.
E. Depreciation
It was clearly evident from the casual examination of various books of account on field trips that most taxpayers had followed no settled policy in determining the depreciation that was to be taken on their fixed assets. The only authorized method of depreciation of fixed assets for tax purposes is the declining balance method. It is recognized that this is certainly one of the better methods of depreciating industrial assets. There have been a great many requests to this mission, particularly on behalf of corporations, to allow depreciation of fixed assets on a straight line method. These and various other methods of depreciation are well recognized by accountants. Generally, different types of assets may require different methods of depreciation if the best estimate of the true income of an accounting period is to be obtained. A taxpayer should be given a reasonable amount of freedom to use one method or another, and possibly several different methods on different types of assets, without too much restriction by the tax authorities. But each method must be followed consistently if the true income of a taxpayer for an accounting period is to be determined for tax purposes. Also, a taxpayer should not be able to change his methods of depreciation or the types of asset covered by each method unless he has secured the prior approval of the Ministry of Finance to make the change. The Ministry of Finance could then protect the revenues where the Ministry permits a change by requiring whatever adjustments are necessitated in the income account of taxpayer as a result of a change in the method of depreciation. It is therefore recommended that the Ministry of Finance make a study dealing with the methods of depreciation, and that an appropriate ordinance be issued setting forth the various methods that individuals and corporate taxpayers may use, and the general terms and conditions under which a taxpayer may make a change from one method to another, after the election has been made to use a particular method with respect to any given type of asset.
The Ministry of Finance does not have engineers on its staff to assist the various technical people administering the income tax laws in determining the service life of various assets, and also in the determining of the value or values of assets that are required to be valued for tax purposes. Valuation and the service life of assets are problems of such a highly specialized character that it seems imperative to add the necessary engineer personnel to the Ministry of Finance to handle these specialized problems. It is therefore recommended that at an early date this engineer personnel be employed by the Ministry of Finance for the purposes indicated.
F. Repairs Versus Capital Expenditures
It appears that no policy has been developed to control adequately the deduction of many items of expenditure by individuals and corporations that are of a capital nature. In fact, in at least one instance, our mission discovered that a large addition to a plant involving millions of yen had been written off in the year of construction and in the following year the taxpayer had begun to depreciate the cost of the building. This problem has been discussed with the Ministry of Finance and they have already started the preparation of an ordinance which will set forth appropriate instructions to the various national tax offices so that examining agents will be properly advised as to what type of expenditures should be allowed as business expenditures against gross income and what kind should be capitalized and added to the book value of the assets of the taxpayer, thereafter being subject to appropriate depreciation deductions. Generally speaking, expenditures to repair property must be capitalized where the expenditure extends the useful service life o the asset. If it does not, then generally speaking, it should be taken as a business expense. This matter requires careful study by the Ministry of Finance and the early issuance of an appropriate ordinance giving adequate instructions to the field. By a statement of a general rule, the Ministry should draw the line between repairs that are expensed and those that are capitalized.
It should be noted that as long as capital gains are taxed in full, and as long as proper adjustments are made to the basis of all assets with respect to which depreciation, repairs and inventory entries are made, changes in the methods of accounting at these points will involve merely a change in the time at which income is reported, not in the aggregate amount. Accordingly a certain amount of latitude may be allowed in accounting for these items. If capital gains are not fully taxed, restrictions on such matters would need to be much more stringent.
G. Bad Debt Reserve
Requests have been submitted by taxpayers, particularly financial institutions, that they be permitted to set up a bad debt reserve, and to deduct additions to this reserve in computing net income. There seems to be no objection to this in principle, provided that the reserve is kept within reasonable limits, designed to represent an estimate of the average amount of default to be expected from the aggregate of accounts receivable at a given time. The practice of charging off a substantial depreciation on a government bond as soon as purchased, however, seems unjustifiable.
The setting up of a bad debt reserve has been urged in part as a means of eliminating occasions for dispute between the taxpayer and the tax officials over the year in which a bad debt should properly be charged off as worthless. But it may be possible to tackle the problem more directly by imposing restraints on the administration. Such an approach, if after study it should prove feasible, would have the advantage of applying to all taxpayers, and not merely to those who set up reserves.
The mission has not had time to study this problem thoroughly enough to warrant making specific recommendations other than that study should be given to the problem. The mission does, however, offer the following suggestions as possible measures to be evaluated:
1. that reserves for bad debts be allowed with respect to all types of businesses, subject to limitations laid down by ordinance;
2. that the maximum amount of the reserve be a percentage of accounts receivable, specified for various lines of business and types of obligation, by ordinance;
3. that the maximum net increase in such a reserve (charges to income in excess of debts charged off during the year) during the next five years, be limited to 20 percent of net income;
4. that where accounts receivable include obligation to pay interest, or where the face amount of the obligation is not entered in full as an asset, appropriate allowance for such future income or such discount should be made in setting up the bad debt reserve;
5. that no depreciation or other reserve shall be allowed with respect to government bonds, and that such reserves as have been set up shall be liquidated before any reserve for bad debts is allowed;
6. that reserves for unearned interest, unearned subscriptions and other similar liabilities may be permitted where appropriate:
7. that no writing off of a bad debt and no amount of depreciation shall be disallowed by the tax assessor solely on the ground that such bed debt should have been written off in an earlier year, or that depreciation allowances taken in an earlier year were inadequate, provided that the records of the taxpayer clearly show the absence of such a writing-off or taking of depreciation.
[# end of Chapter 7]