EE Black, Limited v. Alsup

• Citation: 211 F.2d 879
• Decision Date: 15 April 1954
• Docket Number: No. 13593.,13593.
• Parties: E. E. BLACK, LIMITED v. ALSUP.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

211 F.2d 879 (1954)

E. E. BLACK, LIMITED v. ALSUP.

No. 13593.

United States Court of Appeals Ninth Circuit.

April 15, 1954.

Robertson, Castle & Anthony, Alfred L. Castle, J. Garner Anthony, and Frank D. Padgett, Honolulu, Hawaii, for appellant.

H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Lee A. Jackson, George F. Lynch, Robert B. Ross, Sp. Assts. to Atty. Gen., Washington, D. C., A. William Barlow, U. S. Atty., Honolulu, Hawaii, for appellee.

Before HEALY and ORR, Circuit Judges, and LEMMON, District Judge.

HEALY, Circuit Judge.

Appellant (herein called the taxpayer) sued for the recovery of excess profits taxes for the year 1945 alleged to have been erroneously and illegally assessed and collected. The appeal is from a judgment denying recovery.

The facts are not in dispute. Taxpayer is a building contractor in Hawaii. Since its incorporation in 1926 it has consistently made its Federal tax returns on the "completed contract basis" pursuant to Regulation 111, section 29.42-4 (b) promulgated under 26 U.S.C.A. §§ 41 and 42. So far as material here the regulation reads:

"Sec. 29.42-4. Long-Term Contracts. — Income from long-term contracts is taxable for the period in which the income is determined, such determination depending upon the nature and terms of the particular contract. * * * Persons whose income is derived in whole or in part from such contracts may, as to such income, prepare their returns upon either of the following bases:

(a) * * *.

(b) Gross income may be reported for the taxable year in which the contract is finally completed and accepted if the taxpayer elects as a consistent practice so to treat such income, provided such method clearly reflects the net income." Emphasis added.

On July 28, 1944 the taxpayer contracted with the Federal Public Housing Authority to construct a housing project. The contract provided for final payment when the construction was completed and accepted by the Authority. On April 30, 1945 the taxpayer requested of the Authority final payment in the amount of $44,533.50. On November 5, 1945 the Authority allowed $44,000.00 of the sum, withholding the balance of $533.50 until completion of the installing of thermostat units for the fire alarm system in the project's community building. These thermostats were not installed until March of 1946; and on June 26, 1946 the Authority paid the balance which had been withheld.

In its income and excess profits tax returns for 1945 the taxpayer did not report its profit on the contract. The Commissioner assessed a deficiency for that year on the basis of his construction of the Regulation, namely, that the phrase "finally completed and accepted" means substantially completed. Taxpayer paid the assessment, and, as already stated, brought suit to recover the payment. The sole issue being one of law as to the meaning of the Regulation, both parties moved for summary judgment. The court was of opinion that the contract was finally completed and accepted in 19...