Nat'l Builders, Inc. v. Sec'y of War
| Decision Date | 31 May 1951 |
| Docket Number | Docket No. 165-R. |
| Citation | 16 T.C. 1220 |
| Parties | NATIONAL BUILDERS, INC., B. H. STAHR COMPANY, A. HEDENBERG & COMPANY, INC., AS JOINT VENTURERS, PETITIONERS, v. SECRETARY OF WAR, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Orin M. Oulman, Esq., for the petitioners.
John F. Wolf, Esq., for the respondent.
The petitioners, members of a joint venture, were awarded by the United States Government, a negotiated contract to construct part of Camp McCoy, Sparta, Wisconsin, on April 16, 1942, under which construction was completed in October 1942, except that some repairs were made in 1943. The joint venture kept its books and made its tax returns on a cash basis for a fiscal year ending on March 31. The total contract price was $4,554,733.17. The Government paid $400,142.95 on the contract in June 1942 and further payments aggregating $3,791.954.84 by October 19, 1942. The balance, $362,778.73, was paid by the Government on August 16, 1943. There was renegotiation. On February 25, 1944, section 701 of the 1943 Revenue Act, which amended the Renegotiation Act, was enacted. Under section 403(d)(1), the War Contracts Price Adjustment Board was authorized to renegotiate profits of fiscal years ending after June 30, 1943, and under section 403(c)(6), the provisions of section 403(c)(1) were made applicable to the extent of amounts received or accrued in any fiscal year ending after June 30, 1943. However, on December 21, 1944, the Secretary of War unilaterally determined that the petitioners realized excessive profits on a complete contract basis without regard for the actual receipts of payment during a fiscal year ending after June 30, 1943. Held:
1. That the respondent was without authority to renegotiate profits on an individual, complete contract basis in disregard of the amendment of the Renegotiation Act so as to treat the payment received by petitioners during a fiscal year ended after June 30, 1943, as though petitioners had accrued the payment received on August 16, 1943, during their fiscal year which ended on March 31, 1943.
2. That since no valid determination has been made by any agent or agency of the Government with respect to the realization of excessive profits in any fiscal year ending before or after June 30, 1943, this Court does not have jurisdiction.
The respondent made a unilateral determination on December 21, 1944, on the basis of an individual, complete contract that petitioners realized excessive profits under an individual contract in the amount of $575,000. He has determined, under amended answer in this proceeding, that profits realized from the complete contract were excessive in the total amount of $800,000 and asks this Court to sustain his determination of the latter amount. The petitioners challenge the right of the Secretary of War to renegotiate profits on the basis of an individual, complete contract under the provisions of the 1943 Renegotiation Act. The petition presents several questions, decision of which depends upon whether this Court has jurisdiction. The first questions to be decided are: (1) Whether a valid determination has been made by the Secretary of War; (2) whether this Court has jurisdiction.
We find the facts which have been stipulated to be facts in this proceeding.
The petitioners joined together on April 7, 1942, as joint venturers, to perform a contract with the United States Government to construct part of Camp McCoy, Area D, at Sparta, Wisconsin. National Builders, Inc., and A. Hedenberg & Co. are Minnesota corporations. B. H. Stahr Company is a Minnesota partnership in which B. H. Stahr and Roger B. Stahr are partners.
On April 16, 1942, the petitioners, as joint venturers, entered into an agreement with the Government of the United States to construct, prior to October 3, 1942, buildings and structures, including utilities and appurtenances, in Area D at Camp McCoy, Sparta, Wisconsin. The total contract consideration to be paid by the Government, after several modifications of the original contract under change orders, was $4,554,733.17.
The joint venture of the petitioners kept its books on the basis of a fiscal year ended March 31 and on a cash basis. The first fiscal year of the joint venture ended on March 31, 1943, on which date the books were closed, and they were closed on March 31 of succeeding years. The joint venture made its Federal tax returns on a cash and fiscal year basis for the fiscal years which ended March 31, 1943, and March 31, 1944.
Construction under the contract began on April 18, 1942, and the last building was accepted as properly constructed on October 3, 1942.
During the fiscal year of the joint venture ended on March 31, 1943, the Government made payments in the total amount of $4,191,954.84. The balance of the contract price, $362,778.33, was paid by the Government on August 16, 1943, which was during the fiscal year of the joint venture which ended on March 31, 1944. The Government withheld the making of the final payment until August 16, 1943, because the Secretary of War had commenced renegotiation proceedings in November of 1942.
The contract payments received by the joint venture and its expenses during each of the fiscal years ended March 31, 1943, and March 31, 1944, were as follows:
Renegotiation began in the fall of 1942. The unilateral determination of the Secretary of War was made on December 21, 1944. The determination was made that the petitioners had realized excessive profits in the amount of $575,000 under the ‘contract,‘ W-1088-eng-1651.
After the respondent's determination of December 21, 1944, and after the petitioners had filed their petition in this Court, the respondent made further audits, the results of which, in part at least, were set forth in stipulations which were filed during the trial of this proceeding. Also, after the trial, the respondent filed an amended answer asserting his claim ‘to conform with proof‘ that contract profits were excessive in the amount of $800,000. Ultimate Findings of Fact.
(1) The petitioners did not at any time request the Secretary of War or any authorized agency to make renegotiation with respect to profits on the basis of a single contract.
(2) In his final determination under notice dated December 21, 1944, the Secretary of War made a renegotiation determination as to excessive profits on the basis of a single contract; he did not make his renegotiation determination on the basis of a fiscal year ended on March 31, 1943, or of any fiscal year ended before July 1, 1943.
In the petition, the petitioners allege, inter alia, that the respondent erred in including in the fiscal year which ended before June 30, 1943, contract payments which were received in a fiscal year which ended after June 30, 1943, having reference to the Government's payment of $362,778.33 on August 16, 1943. On brief, the petitioners, in reliance upon the provisions of section 403(c)(1) and (6) of the Renegotiation Act section 701(b) of the Revenue Act of 1943, which was enacted on February 25, 1944, contend, in effect, that the Secretary of War did not have authority to make a renegotiation determination with respect to amounts received in a fiscal year which ended after June 30, 1943; that the War Contracts Price Adjustment Board was the agency of the Government which became authorized to renegotiate and make determinations with respect to amounts received in a fiscal year ending after June 30, 1943; and that by virtue of the 1943 amendments of the Renegotiation Act, the authority of the Secretary of War to make any renegotiation determination with respect to the contract between the petitioners and the Government was restricted to the amounts received by the petitioners in their fiscal year ended prior to June 30, 1943.
The petitioners contend, also, that the Renegotiation Act is unconstitutional, that they did not realize excessive profits. In view of the conclusions which we reach under the chief questions, it is unnecessary to consider the other contentions of the petitioners.
The respondent contends, inter alia, that the petitioners were properly renegotiated on a single contract basis by the Secretary of War. He relies upon section 403(c)(1) of the Sixth Supplemental National Defense Appropriations Act, prior to the 1943 amendments, which is sometimes called the 1942 Renegotiation Act, which was enacted on April 28, 1942.1 He takes the position that since the Secretary of War ...
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