Ebco Mfg. Co. v. Secretary of Commerce

The Ebco Manufacturing Company, and Albert Ray Benua, Individually and as Trustee for Richard S. Benua and Thomas R. Benua, and Louis P. Benua, Copartners, Doing Business as The Ebco Manufacturing Company, Petitioners, v. Secretary of Commerce, Respondent Ebco Mfg. Co. v. Secretary of Commerce Docket No. 589-R. United States Tax Court 21 T.C. 1041; 1954 U.S. Tax Ct. LEXIS 251; March 31, 1954, Promulgated *251 Decision will be entered for the respondent. Renegotiation -- Statute of Limitations -- Notice. -- Held, that a telegram, sent by respondent and received by petitioners within 1 year after the close of petitioners' fiscal year, was sufficient notice of a commencement of renegotiation proceedings. Peter B. Atwood, Esq., for the petitioners. Ralph G. Cornell, Esq., for the respondent. Johnson, Judge. JOHNSON *1041 The Chairman of the United States Maritime Commission Price Adjustment Board, acting on behalf of the Chairman of the United States Maritime Commission, entered an order on June 26, 1946, whereby it was determined that petitioners' profits for the fiscal year ended November 30, 1942, were excessive in the amount of $ 100,000, and payment was demanded therefor. On September 13, 1946, petitioners charged error in*252 the determination and requested a redetermination of the amount of excessive profits. Later, on November 5, 1948, pursuant to leave of this Court, petitioners filed their Second Amended Petition. On November 10, 1948, petitioners filed a motion for severance of the issues. By this motion petitioners sought to separate the issue relating to whether or not renegotiation was commenced within the statutory period from other issues relating to the merits. (See the Renegotiation Act of 1942 as amended, sec. 403 (c) (5) and (6).) Petitioners' motion was granted. On March 17, 1949, counsel for both parties filed a stipulation which they deemed pertinent, material, and necessary for the determination of the statute of limitations issue. They also filed a joint motion asking that the issue as to the statute of limitations be submitted under Rule 30 of this Court's rules of practice. The motion to submit the proceeding under Rule 30 was granted and an order designating the time for briefs was entered on March 23, 1949. After consideration of the record and arguments presented by the parties, this Court entered an order on December 30, 1949, which in part stated: it appears for reasons*253 which will be fully set forth in a subsequent opinion that renegotiation of petitioners' contract or contracts for the fiscal year ended November 30, 1942, was commenced within the period prescribed by statute, * * * It was ordered that the proceeding be set for hearing on the merits. On September 26, 1952, respondent filed a motion to dismiss the petition for failure to substitute the Secretary of Commerce as the *1042 party respondent, in lieu of the Chairman of the United States Maritime Commission. Petitioners objected to this motion and the proceeding was placed on the Reserve Calendar pending determination of Chairman of the United States Maritime Commission v. California Eastern Line, Inc., 204 F. 2d 398, which was pending in the United States Court of Appeals for the District of Columbia Circuit. After this case was decided petitioners filed a motion for leave to substitute the Secretary of Commerce as respondent. This proceeding was removed from the Reserve Calendar, respondent's motion to dismiss was denied, and petitioners' motion to substitute was granted on January 20, 1954. On March 9, 1954, petitioners filed a motion for *254 judgment wherein they waived all issues and assignments of error as set forth in their Second Amended Petition, "with the exception of said assignments of error relating to commencement of renegotiation contained in Paragraphs 3 (d) and (e) and the correlative statement of facts as set forth in Paragraph 4 (f) of said Second Amended Petition and related stipulation of facts heretofore submitted in connection with that issue." Respondent did not object to this motion. Again, on March 9, 1954, respondent filed a motion for entry of an order whereby he "moves the Court to enter an Order herein determining the excessive profits of the petitioners to be in the amount of One Hundred Thousand Dollars for the period December 1, 1941, to November 30, 1942, inclusive." Petitioners did not object to this motion and the entry of the order, subject to the allowance of their motion for judgment filed the same day. Now, in accordance with our order dated December 30, 1949, we set forth the following Findings of Fact and Opinion, wherein we hold that renegotiation for petitioners' fiscal year ended November 30, 1942, was commenced on November 29, 1943, within the time prescribed by section 403 (c) *255 (6) of the Renegotiation Act of 1942, as amended. FINDINGS OF FACT. The above named petitioners (hereinafter called Ebco) are engaged in business as a partnership consisting of Albert Ray Benua, individually and as trustee for Richard S. Benua and Thomas R. Benua, and Louis P. Benua, copartners, doing business as The Ebco Manufacturing Company, with offices at 401 West Town Street, Columbus, Ohio. Ebco has no subsidiaries or other affiliated companies. Ebco's partners during the fiscal year ended November 30, 1942, did, however, conduct a separate business, as copartners, known as Triumph Brass Company, Columbus, Ohio. *1043 On June 26, 1946, by Order No. 89, the United States Maritime Commission entered an order determining the amount of excessive profits of Ebco for the fiscal year ended November 30, 1942, in the amount of $ 100,000, and ordered the elimination thereof by such means as are provided in the Renegotiation Act. On that date John R. Paull, Chairman, United States Maritime Commission Price Adjustment Board, acting on behalf of the Chairman of the United States Maritime Commission, advised Ebco of this determination and demanded payment of such amount. Ebco maintains*256 its books and records and files its Federal income tax returns on the accrual method of accounting, and uses the fiscal year from December 1 to November 30 as its annual fiscal period of 12 months. This practice was in effect for the fiscal year ended November 30, 1942, the year involved in this proceeding. During the fiscal year ended November 30, 1942, Ebco had no prime contracts with any agency or "Department" of the United States Government, as defined in the Sixth Supplemental Defense Appropriation Act, 1942 (the Act of April 28, 1942, Pub. L. No. 528, 77th Cong., 2d Sess.), or in the Revenue Act of 1942 (the Act of October 21, 1942, Pub. L. No. 753, 77th Cong., 2d Sess.). During the entire fiscal year 1942 Ebco was engaged in the manufacture and sale of electric water coolers, icewater coolers and fountain brass goods, steel partitions, kitchen sinks, drinking fountains, and plumbing fixtures. The substantial portion (approximately 80 per cent) of its business was confined to the manufacture and sale of electric water coolers, and all of its sales were made directly to wholesalers and distributors who resold these water coolers to dealers and in some cases to consumers. On*257 November 29, 1943, during the late afternoon, Ebco received a telephone call from Joseph McCormack of the Price Adjustment Board, United States Maritime Commission Regional Office at Chicago, Illinois. He spoke to Louis P. Benua, one of Ebco's partners, and inquired as to whether or not Ebco had any prime contracts with the Maritime Commission or any other agency or department of the United States Government. Louis P. Benua stated that they had just recently received a contract from Maritime Commission dated September 1, 1943 (Maritime Contract MC-19688, P. C. MC-44-22049), for electric water coolers, in the amount of approximately $ 108,000. McCormack inquired as to whether or not any shipments had been made in 1943 on that contract. He was told that no shipments had been made on the contract to date and were not expected to be made until 1944, and that they had no direct business with the Government for their fiscal year ended November 30, 1942. McCormack then asked whether or not representatives of Ebco could be present in Chicago the following day and bring with them *1044 the company's last fiscal year balance sheet and income statement. Louis P. Benua then replied *258 that A. R. Benua, Ebco's senior partner and general manager, was home sick with pneumonia and could not be reached, and that they could not possibly be there the following afternoon. McCormack then replied that he would send a telegram that day confirming the request, and that the meeting could be postponed to a later date. The following confirmatory telegram was sent to Ebco at 5:22 p. m., Central War Time (Ebco, being in Ohio, was on Eastern War Time): NOVEMBER 29, 1943 522 PM CHICAGO ILL EBCO MFG CO INITIAL RENEGOTIATION CONFERENCE WITH MARITIME COMMISSION PRICE ADJUSTMENT BOARD SET FOR TUES NOV 30 AT 2:30 PM U S MARITIME COMMISSION OFFICE SECOND FLOOR 310 SOUTH MICHIGAN AVENUE CHICAGO BEFORE UNDERSIGNED. PLEASE HAVE AUTHORIZED REPRESENTATIVE PRESENT WITH BALANCE SHEETS AND INCOME STATEMENTS FOR LAST TWO FISCAL YEARS OR MAKE REQUEST FOR CONTINUANCE TO DATE WITHIN SIXTY DAYS. LETTER FOLLOWS JOSEPH MCCORMACK PRICE ADJUSTMENT BOARD US MARITIME COMMISSION Louis P. Benua confirmed the fact that he could not attend the meeting suggested for November 30, 1943, by sending the following telegram: NOVEMBER 29, 1943 515 PM EB c/o 5 LGSER RETEL SENIOR PARTNER*259 ILL. NOTICE SHORT. CANNOT ATTEND MEETING TOMORROW EBCO MFG. CO. L. P. BENUA November 29, 1943, was a Monday. On the following Monday a week later, or December 6, or Tuesday, December 7, the following letter was received by Ebco from United States Maritime Commission, Regional Construction Office, Chicago, Illinois: UNITED STATES MARITIME COMMISSION Regional Construction Office 310 South Michigan Avenue Chicago 4, IllinoisNovember 29, 1943 Registered Mail Return Receipt Requested The Ebco Mfg. Co. 401 West Town Street, Columbus, Ohio Gentlemen: I have wired you today as follows: INITIAL RENEGOTIATION CONFERENCE WITH MARITIME COMMISSION PRICE ADJUSTMENT BOARD SET FOR TUES NOV 30 AT 2:30 PM, *1045 U S MARITIME COMMISSION OFFICE, SECOND FLOOR, 310 SOUTH MICHIGAN AVENUE CHICAGO BEFORE UNDERSIGNED. PLEASE HAVE AUTHORIZED REPRESENTATIVE PRESENT WITH BALANCE SHEETS AND INCOME STATEMENTS FOR LAST TWO FISCAL YEARS OR MAKE REQUEST FOR CONTINUANCE TO DATE WITHIN SIXTY DAYS. LETTER FOLLOWS. In the event that the time fixed in the telegram would be inconvenient for you to complete the renegotiation proceedings, the board will entertain a request*260 in writing, on a form which I am furnishing you, for a continuance of such conference to a date not later than sixty (60) days from the date fixed in the notice. Please execute and return the original, specifying a definite date. If it is impossible at that date, because of the continued illness of an important officer of your company, to take part in a conference, a request may be made for a further continuance. We have no inclination to be unreasonable in the matter and can appreciate sympathetically the effect of an illness such as you mentioned in our 'phone conversation, but of course cannot permit our records to be maintained in incomplete form. Very truly yours, [Signed] Jos. McCormack Joseph McCormack Price Adjustment Board U S Maritime Commission The attachment referred to in the communication was not attached to the letter when received by Ebco. Neither the balance sheets of Ebco nor its operating statements which had been prepared by its public accounting firm for the fiscal years ended November 30, 1941 and 1942, contained any segregation of renegotiable and nonrenegotiable sales for the fiscal year ended November 30, 1942. Neither did said operating statements contain*261 any segregation of manufacturing or other costs as between renegotiable and nonrenegotiable sales nor did the books and records of Ebco, as they were currently maintained during the fiscal years 1941 and 1942, make any segregation of sales as between renegotiable and nonrenegotiable business for the purpose of determining the amount of excessive profits, if any, or for any other purpose. Forms for requesting a continuance of the proposed conference for November 30, 1943, were mailed to Ebco from the Maritime Commission, Washington, D. C., by its letter of December 17, 1943, and were received by Ebco on December 20, 1943. Ebco disregarded the communication and the request for continuance form, and nothing further was done about the telegraphic communication or the letter of November 29, 1943, until January 5, 1944, when Ebco mailed its letter of January 5, 1944, to Joseph McCormack, Price Adjustment Board, United States Maritime Commission, 310 South Michigan Avenue, Chicago, Illinois, stating that Ebco had no renegotiable business for the fiscal year 1942. The letter of January 5, 1944, was acknowledged by the Maritime Commission by its communication dated January 12, 1944, submitting*262 *1046 statement and affidavit as to nonapplicability of the Renegotiation Act with respect to the fiscal year ended November 30, 1942. After a further exchange of correspondence, Ebco, by its letter of May 4, 1944, stated that it was "now ready to sign an affidavit of nonapplicability of the Renegotiation Act for 1942." Maritime Commission replied to the letter of May 4, 1944, as indicated by its letter of May 8, 1944, commenting generally on information which the Commission felt would be helpful in determining the nonapplicability of renegotiation for Ebco for the year 1942. On May 19, 1944, Ebco filed an affidavit as to nonapplicability of the Renegotiation Act with respect to its fiscal year ended November 30, 1942. Maritime Commission replied to the letter of May 19, 1944, by its communication of May 23, 1944, questioning the determination of the amount of renegotiable sales in 1942 to Nash-Kelvinator Company, and at the same time requested financial data "necessary to determine whether the company made excessive profits during its fiscal year ended November 30, 1942. This should include your audited statement for that year, if you have one, and for previous years back*263 through 1936, for comparison purposes," and enclosed "to assist you Form R173, with Exhibits 1 and 1a. These forms are designed to be used primarily in connection with fiscal years ending after June 30, 1942, but they so far represent a crystallization of the practice of the Board with reference to earlier years that you will find them of considerable assistance in covering the scope of the information which should be made available in connection with the question of renegotiation or clearance." On June 13, 1944, Ebco submitted its operating statements for the fiscal years 1936 through 1941, inclusive, two copies of its audit report for the fiscal year 1942 and a copy of its income tax return for that year, and advised that it would submit additional data in support of its contention as to the nonapplicability of renegotiation for the year 1942 at an early date. The question of amount of sales of electric water coolers through Ebco's distributors to war end uses continued to be in issue by correspondence for some time, and it was not until December 5, 1944, that the first conference was held in Washington with the Maritime Commission with respect to the renegotiation of Ebco's sales*264 for the fiscal year 1942. This conference was referred to by the Maritime Commission in its letter of January 27, 1945, as a preliminary conference. Following the preliminary conference of December 5, 1944, Maritime Commission on January 25, 1945, wrote Ebco enclosing a mimeographed form for the submission of a statement of factors to be given consideration by the Maritime Commission in determining excessive profits. A further conference was held in Washington February 27, 1945, concerning 1942 renegotiation. During the month of June 1945, Maritime Commission sent one of its *1047 auditors to Columbus, Ohio, to confer with Ebco concerning the amount of its renegotiable sales for the fiscal year 1942. Subsequent correspondence between the Maritime Commission and Ebco is cumulative on the issue of sales by distributors and dealers to renegotiable agencies and the amount of such renegotiable sales. No agreement having been reached as to the amount of renegotiable sales, if any, the Maritime Commission issued its Unilateral Order No. 89 on June 26, 1946. OPINION. Petitioners, citing J. H. Sessions & Son, 6 T. C. 1236, contend that the telegraphic*265 notice of November 29, 1943, and the letter of November 29, 1943, addressed to Ebco did not constitute commencement of renegotiation of Ebco for the fiscal year ended November 30, 1942, within the meaning of section 403 (c) (6) of the Renegotiation Act of 1942, as amended. 1 Respondent contends to the contrary. In the Sessions case the letter upon which the Government relied as commencing renegotiation contained, in part, the following: In order that your company and its affiliates, if any, may be assigned for renegotiation to the proper Department or Service with the minimum of inconvenience to all concerned, we will be glad to receive any information*266 which you may care to submit bearing upon the matter. * * * This Court held that the letter did not commence renegotiation within the meaning of section 403 (c) (6). We said, at p. 1244: The letter of March 3, 1943, upon which the respondent relies, was not sent for the purpose of commencing renegotiation proceedings. It was not sent for the purpose of bringing about an initial conference or to obtain information to be used as the basis for the determination of excessive profits. * * * It sought some very limited information for assignment purposes only. * * * The implication is plain from these words that had the letter been sent for the purpose of bringing about an initial conference, the letter would have constituted a commencement of renegotiation proceedings. That precise condition was met in the case here before us. The telegram of November 29, 1943, from the United States Maritime Commission to petitioners (the words of which were repeated in the letter of November 29, 1943) says: "Initial renegotiation conference set for Tues Nov 30." It is difficult to see how it could have used language more unequivocal than that. Petitioners argue that the telegram directed Ebco *267 to be present in Chicago at a time which could not be within the limitations of time *1048 provided in the notice. The notice was short, but the fact that petitioners were given an opportunity, of which they did not avail themselves, to make a request for a continuance of the proposed conference answers any argument that the notice was too short. Petitioners further argue that the telegram could not have constituted a commencement of renegotiation for the fiscal year ended November 30, 1942, because it did not state that that was the year with respect to which renegotiation was contemplated. However, such a statement was unnecessary. In Spray Cotton Mills, 9 T. C. 824, a letter from the renegotiating agency to the Spray Cotton Mills was held by this Court to have commenced renegotiation under section 403 (c) (6), though that letter likewise did not state what fiscal year was involved. In the instant case the only year which could have been subject to renegotiation at the time the notice was sent was the 1942 fiscal year. Under section 403 (c) (6) of the Renegotiation Act of 1942, 2 as amended, the fiscal year ending November 30, 1941, could*268 not have been subject to renegotiation and petitioners so admit on brief. The fiscal year ended November 30, 1943, had not yet ended when the notice was sent on November 29, 1943, and so renegotiation as to that year could not have been commenced by the notice. Petitioners also contend that the telegram could not have commenced renegotiation because it called for the production of balance sheets and income statements, which, according to petitioners, would have been an inadequate basis for determining the amount, if any, of excessive profits arising from renegotiable business. In this connection the following excerpt from Spray Cotton Mills, supra, setting forth the administrative practice in respect to section *269 403 (c) (6), is pertinent: In a "Joint Statement by the War, Navy and Treasury Departments and the Maritime Commission of Purposes, Principles, Policies, and Interpretations" 1 relative to the Renegotiation Acts, which was promulgated on March 31, 1943, it was stated with regard to section 403 (c) (6) that: The Departments interpret this provision to mean that renegotiation commences on the specific date set by the Department conducting renegotiation for the initial renegotiation conference unless otherwise agreed by the contractor. Shortly after publication of the "Joint Statement" containing the above quoted interpretation, and on May 27, 1943, the executive departments, concluding that they had erroneously construed section 403 (c) (6), and according to their custom, amended that interpretation, the amendment reading as follows: *1049 The Departments interpret this provision to mean that renegotiation commences at the time of the institution of proceedings to obtain the information which is to be used as a basis for the determination of excessive profits. *270 Assuming, then, as petitioners contend, that this latter construction was in effect at the time the telegraphic notice was sent on November 29, 1943, it still does not follow that that notice was insufficient to commence renegotiation. The amendment of May 27, 1943, says, to repeat, that "renegotiation commences at the time of the institution of proceedings to obtain the information which is to be used as a basis for the determination of excessive profits." It does not say that all the information must be obtained at the initial renegotiation conference. There has to be a starting point and the contractor's balance sheets and income statements are basic financial data for the determination of excessive profits. It would be placing an impossible burden on the agencies charged with the administration of the Renegotiation Act to say that they must, at their peril, designate every record of a contractor that will be needed to determine excessive profits and request that it be brought to the initial renegotiation conference, or else renegotiation will be deemed not to have commenced. We accordingly hold that renegotiation for petitioners' fiscal year ended November 30, 1942, was commenced*271 on November 29, 1943, within the time prescribed by section 403 (c) (6) of the Renegotiation Act of 1942, as amended. Decision will be entered for the respondent. Footnotes 1. Renegotiation Act of 1942, sec. 403 (c) (6): No renegotiation of the contract price pursuant to any provision therefor, or otherwise, shall be commenced by the Secretary more than one year after the close of the fiscal year of the contractor or subcontractor within which completion or termination of the contract or subcontract, as determined by the Secretary, occurs.↩ 2. Sec. 403. (c) (6) This subsection (c) shall be applicable to all contracts and subcontracts hereafter made and to all contracts and subcontracts heretofore made, * * * unless (i) final payment pursuant to such contract or subcontract was made prior to April 28, 1942, * * *↩ 1. In a preface to the "Interpretations," it was stated that the construction of the statute set forth in the statement represented the present opinion of the departments; that the constructions were subject to revision from time to time as might appear desirable as a result of the operation of the various boards under the statute; and that the constructions were subject to change without notice.↩