NA Woodworth Co. v. Kavanagh
| Decision Date | 09 January 1952 |
| Docket Number | Civ. A. 10266. |
| Citation | 102 F. Supp. 9 |
| Parties | N. A. WOODWORTH CO. v. KAVANAGH, Collector of Internal Revenue. |
| Court | U.S. District Court — Western District of Michigan |
James H. Spencer, Marshall M. Massey, Detroit, Mich. (Dykema, Jones & Wheat, Detroit, Mich., of counsel), for plaintiff.
Andrew D. Sharpe, Fred J. Neuland, Special Assts. to the Atty. Gen., Joseph C. Murphy, Acting U. S. Atty., and Roger P. O'Connor Asst. U. S. Atty., Detroit, Mich., for defendant.
The court has before it a motion to dismiss the complaint on the ground that it does not have jurisdiction. This action is brought as the result of the disallowance by the Commissioner of Internal Revenue of that part of the amount of wages paid by the taxpayer to its employees in the fiscal years ended November 30, 1944, and November 30, 1945, determined by the National War Labor Board to have been paid in contravention of the Act of October 2, 1942, known as the Wage Stabilization Act, and the regulations promulgated pursuant thereto.
During the World War of 1941-1945 the plaintiff was engaged in extensive production of aircraft parts for the Government, and in 1944 and 1945 subcontracted a part of its work to five small suppliers and deducted the price paid for parts so produced from its gross income for those years. The National War Labor Board found, through a hearing before one of its tripartite violation panels, that the five suppliers were not independent contractors but integral parts of the plaintiff corporation, that the employees of the suppliers were in reality plaintiff's employees and that the payments made to those employees were made in contravention of the provisions of the Wage Stabilization Act. The panel recommended in a two to one decision that certain sums be disregarded for the purpose of calculating defendant's deductions under the revenue laws of the United States for the taxable years 1944 and 1945.
The findings and recommendations of the panel were considered by an Enforcement Division of the Board which, after a review of the proceedings, the majority and minority findings and recommendations of the panel, approved the findings and recommendations of the majority, but found, as authorized by the regulations to which reference will be subsequently made, that certain extenuating circumstances existed during the period indicated, and determined that the sum of Fifty Thousand Dollars ($50,000) for each of the taxpayer's taxable years ending November 30, 1944, and November 30, 1945, should be disregarded for income tax purposes in lieu of the larger amounts recommended by the panel. This finding and determination were subsequently affirmed by the National Wage Stabilization Board (successor to National War Labor Board). A certificate to this effect was filed by the Board with the Commissioner of Internal Revenue, pursuant to which a deficiency resulting from the disallowance of the above amounts as deductions was assessed against the taxpayer for each of the taxable years 1944 and 1945.
Payment of the deficiencies was made to the Collector under protest and timely claims for refund were filed by the plaintiff, which claims were disallowed by the Commissioner of Internal Revenue. This suit is brought for $80,614.62, the adjusted deficiency and the alleged overpayment plus interest.
The Wage Stabilization Act, 50 U.S.C.A. Appendix, §§ 961-971 inclusive, provides:
Section 962. "The President may, from time to time, promulgate such regulations as may be necessary and proper to carry out any of the provisions of this Act; and may exercise any power or authority conferred upon him by this Act through such department, agency, or officer as he shall direct. * * *"
The Act of October 2, 1942, was immediately followed by the promulgation by the President on October 3, 1942, of Executive Order 9250, reading as follows: "In order to effectuate the purposes and provisions of this Order and the Act of October 2, 1942 * * * any wage or salary payment made in contravention thereof shall be disregarded by the Executive Departments and other governmental agencies in determining the costs or expenses of any employer for the purpose of any law or regulation, including the Emergency Price Control Act of 1942 * * * or any maximum price regulation thereof, or for the purpose of calculating deductions under the Revenue Laws of the United States or for the purpose of determining costs or expenses under any contract made by or on behalf of the Government of the United States." 50 U.S.C.A. Appendix, § 901, Title III, Sec. 4. This order created the Office of Economic Stabilization, to be headed by an Economic Stabilization Director who was empowered to formulate and develop a comprehensive national economic policy relating to the control of wages and all related matters for the purpose of preventing avoidable increases in the cost of living and to facilitate the prosecution of the War and, to that end, to issue directives to the Federal departments and agencies concerned.
Pursuant to the provisions of Executive Order 9250 the Director promulgated regulations and amendments thereto by which the National War Labor Board was given authority to determine whether any wage payments are made in contravention of the Act, rulings, orders or regulations promulgated thereunder. The regulations also provided that any determination made by the Board that payments of wages were in contravention of the Act, rulings, orders or regulations promulgated thereunder shall be conclusive upon all executive departments and agencies of the Government in determining the costs or expenses of any employer for the purpose of any law or regulation or for the purpose of calculating deductions under the revenue laws of the United States and specifically provided that any determination of the Board made pursuant to the authority conferred on it shall be final and shall not be subject to review by the Tax Court of the United States or by any court in any civil proceedings. (Sec. 4001.2(a)).
Section 4001.15 of the regulations of the Director, as amended, provides in subsection (a) that if any wage or salary payment is determined by the Board to have been made by an employer in contravention of the Act or the regulations, rulings or orders promulgated thereunder, the entire amount or an amount reduced as provided in subsection (b) "in the light of such extenuating circumstances as are found to be present in each case and all other pertinent considerations," shall, upon certification by the Board to the Commissioner of Internal Revenue, be disregarded for the purpose of calculating deductions under the revenue laws of the United States. Subsection (c) of Section 4001.15 further provides that any such determination by the Board shall be conclusive and that the Commissioner of Internal Revenue upon receipt of such certifications shall disregard the amount thus certified in determining deductions under the revenue laws of the United States.
It is well settled that the court has no right to review and redetermine questions of fact considered and lawfully determined by an administrative authority.1 The complaint in this case charges error...
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