Oak Mfg. Co. v. United States
| Decision Date | 13 January 1961 |
| Docket Number | Civ. No. 56 C 1715. |
| Citation | 193 F. Supp. 514 |
| Parties | OAK MFG. CO., a corporation, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Peter B. Atwood, Chicago, Ill., for plaintiff.
Robert Tieken, U. S. Atty., Chicago, Ill., for defendant.
This matter having been submitted to the Court on a stipulation of facts entered into by the parties, and the Court having read and considered the said stipulation, the pleadings filed herein, and the documents and exhibits presented by the parties, and the Court having read, heard and considered the briefs, memoranda and oral arguments submitted by counsel in support of their respective positions, and the Court being fully advised, the Court hereby enters its Findings of Fact and Conclusions of Law as follows:
Findings of Fact
1. The plaintiff, Oak Mfg. Co. (hereinafter called "Oak"), is an Illinois corporation with offices at Chicago, Illinois.
2. On January 8, 1951, Oak by appropriate action of its Board of Directors on that day, established a formal written Profit Sharing Bonus Plan. (Hereinafter
referred to as the Bonus Plan.) This Bonus Plan covered only salaried employees, those employees employed at an hourly rate being covered by a separate bonus plan. The Bonus Plan of January 8, 1951, supplemented a profit-sharing and pension plan adopted in 1944.
At the time of the adoption of the Bonus Plan on January 8, 1951, Oak kept its accounts and filed its federal income tax returns on the basis of a fiscal year ended May 31, so that its first fiscal year ending after January 8, 1951, the date of the adoption of the Plan, was May 31, 1951. Thereafter Oak, by appropriate action of the Commissioner of Internal Revenue, changed its fiscal year to coincide with the calendar year, effective June 1, 1951. Thus there was a short taxable period of seven months ending December 31, 1951 which was also the subject matter of review by the National Enforcement Commission.
3. During the periods here involved there were 7 employees of the plaintiff who were entitled to and did share under Part A of the Bonus Plan. During 1950 and prior to end of the plaintiff's fiscal year ending May 31, 1950, these 7 employees had received bonuses totaling $39,600. The highest single bonus of this group was in the amount of $11,800. No bonuses other than these were paid by Oak to these 7 employees during the calendar year 1950.
On May 31, 1951 and December 31, 1951, Oak paid bonuses to these 7 employees under Part A of the Bonus Plan. The bonuses paid on May 31, 1951 totaled $59,463.76 and the bonuses paid on December 31, 1951 totaled $31,165.
4. In December of 1949, the President of Oak died. His death resulted in a shifting of responsibilities within the executive staff of Oak. Due to this shifting of responsibilities and other factors resulting from the death of Oak's President, certain salary increases were approved on February 24, 1950 to be effective on January 1, 1950. The salary structure relating to plaintiff's executives immediately prior to and as of January 1, 1950 was as follows:
Annual Salary
Fixed Feb. 24, 1950
Classification Prior Annual Salary Effective
Name to January 1, 1950 Dec. 31, 1949 January 1, 1950
E. Sandstrom Vice President (made $33,200 $38,200
Chairman of Board of
Directors Feb. 11
1950)
Robert A. Vice President (made 32,500 38,200
O'Reilly President Feb. 11
1950)
Edward J. Vice President 21,950 21,950
Mastney
Harry J. Asst. Sales Manager 18,150 20,650
Veitch (made Vice President
in Charge of Sales
February 11, 1950)
John A. Treasurer 17,500 17,500
Rovelstad
William Secretary 12,500 15,000
Bessey
5. On December 11, 1950 salary increases were approved for Oak's executive staff; these increases were made effective on June 1, 1950 and raised the January 1, 1950 salaries referred to in paragraph 4 of these Findings to the amounts indicated below:
Salary as of
Name Classification June 1, 1950
E. Sandstrom Vice President (made Chairman of $42,000
Board of Directors Feb. 11, 1950)
Robert A. O'Reilly Vice President (made President 42,000
February 11, 1950)
Edward J. Mastney Vice President 24,150
Harry J. Veitch Asst. Sales Manager (made Vice 22,175
President in Charge of Sales February
11, 1950)
John A. Rovelstad Treasurer 19,250
William Bessey Secretary 16,500
6. With respect to the calendar year 1952, Oak paid bonuses to the employees participating under Part A of the Bonus Plan in the total amount of $50,000. The highest single bonus paid under Part A of the Bonus Plan during the calendar year 1952 was $14,899, which full amount was paid to both Mr. E. Sandstrom and Mr. R. O'Reilly.
7. The salaries paid for the payroll period which included January 15, 1950 to the executives of Oak who subsequently participated under Part A of the Bonus Plan totalled $161,500; annual salaries increased as of June 1, 1950, $14,575; or a total of $176,075.
8. Oak filed its federal income and excess profits tax return for its fiscal year ended May 31, 1951, within the time provided by law, and made payment of the tax due according to said income tax return. The Revenue Agent made certain adjustments to said return upon audit thereof, reflecting a disallowance of $18,288.76 with respect to salary bonus payments disallowed by reason of the action of the National Enforcement Commission. The Commissioner of Internal Revenue, through his Revenue Agent, disallowed part of said salary bonus payments made by Oak to its employees on the ground that such payments were made in violation of General Wage Stabilization Regulation 1 promulgated under the Defense Production Act of 1950, 50 U.S. C.A.Appendix, § 2061 et seq. These disallowances resulted in additional taxes due for the fiscal year ended May 31, 1951 in the amount of $13,313.23.
9. Oak filed its federal income and excess profits tax return for its short taxable year ended December 31, 1951 (for the period beginning June 1, 1951 and ending December 31, 1951) within the period provided by law, and made payment of the tax due according to said income tax return. As a result of the determination of the National Enforcement Commission with respect to salary bonus payments made during the fiscal year ended May 31, 1951, resulting in the disallowance of $18,288.76 for said fiscal year on the ground that said payments were made in violation of General Wage Stabilization Regulation 1, there was an additional tax due for the short taxable period ended December 31, 1951 in the amount of $281.
10. Oak filed its federal income and excess profits tax return for its calendar year 1952 within the period provided by law, and made payment of the tax due according to said income tax return. The Revenue Agent made certain adjustments to said return upon audit thereof, reflecting disallowance of $4,623 with respect to salary bonus payments disallowed by reason of the action of the National Enforcement Commission. The Commissioner of Internal Revenue, through his Revenue Agent, disallowed said salary bonus payments made by Oak to its employees on the ground that such payments were made in violation of General Salary Stabilization Regulation 2 promulgated under the Defense Production Act of 1950. These disallowances resulted in additional taxes due for the calendar year 1952 in the amount of $4,280.26.
11. Within the time prescribed by law, Oak filed its claim for refund with respect to income taxes asserted to have been erroneously assessed and collected on account of the disallowance of the referred to salary bonus payments made by Oak as described in paragraphs 2 and 4 above, as follows:
(i) For the fiscal year ended May 31, 1951, $13,313.23.
(ii) For the short taxable period June 1, 1951 to December 30, 1951, $281.00.
(iii) For the calendar year 1952, $4,280.26.
12. No statutory notice of disallowance of said claims for refund has been mailed to Oak pursuant to the provisions of Section 6532(a) (1) of the 1954 Internal Revenue Code, 26 U.S.C.A. § 6532(a) (1), and more than six months have expired since the filing of said claims.
13. On or about April 7, 1953, there was served upon Oak by the Office of Salary Stabilization, through its chief counsel, a complaint before the National Enforcement Commission. Oak Mfg. Co. filed an answer and supplemental answer to this complaint.
14. Following the issuance of said complaint, hearings were had on April 30, 1953, May 15, 1953 and June 11, 1953 before an Enforcement Commissioner designated by the National Enforcement Commission. At the conclusion of said hearings both the Office of Salary Stabilization and Oak filed proposed Findings of Fact and Conclusions of Law. In support of its proposed...
To continue reading
Request your trial
-
Whitney Stores, Inc. v. Summerford
...within the prohibition of the Eighth Amendment, United States v. Schechter, 8 F.Supp. 136 (E.D. N.Y.1934); Oak Mfg. Co. v. United States, 193 F.Supp. 514 (N.D.Ill.1961); O'Malley v. United States, 227 F.2d 332, cert. den. 350 U.S. 966, 76 S.Ct. 434, 100 L.Ed. 838, this statutory fine clearl......
-
Hayward v. Comm'r Ofinternal Revenue, Docket Nos. 73960
...See S. Rept. No. 2250, 81st Cong., 2d Sess., p. 39, similarly describing section 405(b) of the 1950 Act.See Oak Mfg. Co. v. United States, 193 F.Supp. 514, 519 (N.D. Ill.1961), referring to a N.E.C. disallowance for income tax purposes as a ‘permissible sanction.’ 15. I.R.C. 1939, secs. 181......