Court Opinion

ID: 4606652
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:39:00.522928+00
Date Added: 2024-06-11T07:53:24.848518
License: Public Domain

A. P. Dowell, Jr., Petitioner, v. James V. Forrestal, Secretary United States Navy Department, RespondentDowell v. ForrestalDocket Nos. 626-R, 696-RUnited States Tax Court13 T.C. 845; 1949 U.S. Tax Ct. LEXIS 27; November 30, 1949, Promulgated 1949 U.S. Tax Ct. LEXIS 27">*27  Petitioner asks a redetermination of an order of the Secretary of the Navy that he realized excessive profits under war contracts during the fiscal year 1942.  Held:(1) Petitioner was a subcontractor within the meaning of section 403 (a) (5) (ii) of the Renegotiation Act of 1942 as amended, and subject to renegotiation.(2) This Court therefore lacks jurisdiction to review the order of the Secretary of the Navy under section 403 (e) (2) of the Renegotiation Act of 1943, and the proceeding is dismissed.(3) Petitioner's motion to dismiss his petition with respect to the fiscal year 1943 is granted.  Evelyn A.1949 U.S. Tax Ct. LEXIS 27">*28  Greene Smith, Esq., and William J. Murray, C. P. A., for the petitioner.Harland F. Leathers, Esq., and Paul F. Muilenberg, Esq., for the respondent.  Leech, Judge.  LEECH 13 T.C. 845">*845  Petitioner, by these consolidated proceedings, seeks a redetermination of orders of the Secretary of the Navy that $ 55,000 of the profits realized by petitioner during the fiscal year 1942 and $ 5,000 during the fiscal year 1943, on war contracts, were excessive.  Subsequent to the hearing, petitioner abandoned his appeal in Docket No. 696-R, with respect to the year 1943, and moved the dismissal of that proceeding.13 T.C. 845">*846  The issues presented are (1) whether we have jurisdiction of this proceeding; (2) whether petitioner was exempt from renegotiation under the Renegotiation Act of 1942; and (3) whether the Renegotiation Act of 1942 as applied to petitioner is constitutional.The proceeding was submitted on a partial stipulation of facts, oral testimony, and exhibits.  The stipulated facts are found accordingly.FINDINGS OF FACT.Petitioner, at the time of the filing of the petition, was a resident of Detroit, Michigan, and at the time of the hearing was a resident of Belle River, Ontario, 1949 U.S. Tax Ct. LEXIS 27">*29 Canada.  Petitioner since 1924 has been connected with the automotive industry in various capacities, as apprentice toolmaker, factory worker, partner in a die-manufacturing company, and salesman.  In 1941 he was engaged primarily in the sale of dies.While visiting the plant of the Curtiss-Wright Corporation in Buffalo, New York, petitioner learned that there was a shortage of certain parts essential to the production of aircraft, particularly in the case of bushings, the manufacture of which required the cooperation of various producers and processors, no one of whom would accept the responsibility of furnishing the entire product.  Petitioner was asked by Curtiss if he could locate for them a manufacturer who was capable of producing the required bushings and who would undertake to supply such product.  Petitioner thereupon approached the Wm. Darkwood Co., which was then operating a small jobbing business.  After discussing the problem with William Darkwood, president of the company, the latter refused to take the responsibility of furnishing the bushings except on condition that petitioner would assume the responsibility of handling all sales, engineering, and service on a commission1949 U.S. Tax Ct. LEXIS 27">*30  basis.  No formal detailed contract was executed, but their understanding was set forth in a letter, dated April 10, 1941, which reads as follows:Wm. Darkwood CompanyScrew Machine Products and Machined Parts2717 East Larned StreetDetroit, Mich.April 10, 1941.Mr. Arthur P. Dowell, Jr.,Detroit, Michigan.Dear Mr. Dowell:After considering our conversations as to the processing of bushings for aircraft, the following facts are to be considered:Inasmuch as this is something entirely new for us and there is so much engineering and development work to be done in order to make a perfect product meeting the specifications of the various prints; the both of us will have to work together to find out the best procedure to follow in processing the parts.  From past experience I know that this will take considerable time and money.13 T.C. 845">*847  You are aware that we have no engineering force, and the entire development of these bushings, together with the sale of same, will depend entirely on you, or someone delegated by you.  I, personally, feel that with your ability to develop this business both from an engineering and a sales standpoint, there will be no need of our company employing1949 U.S. Tax Ct. LEXIS 27">*31  a sales or engineering force to handle this work.After considering the volume of work that this will entail, it appears to me that the proper way to handle the sales would be on a commission basis, based on your handling all engineering in addition to sales and service.  You, of course, understand that the commission will depend entirely on the sizes of the bushings, and the corresponding prices to the customers whereby we can meet the competition of other manufacturers. My understanding is that these bushings will range from .094 to over 4.00 inches in length and diameters up to 2".This letter is sent to you in duplicate, and would ask that you kindly sign the duplicate copy and return same to us, which will signify that this arrangement is agreeable to you.Yours very truly,Wm. Darkwood Company,President.Accepted:[Sgd.] Arthur P. Dowell, Jr.Thereafter petitioner devoted his time and efforts to the production of these bushings, their sale to Curtiss, and the elimination of the difficulties in their use.  Petitioner was given a desk in the office of the Darkwood Co., and he undertook the required responsibility.  While in Detroit he reported at nine in the morning1949 U.S. Tax Ct. LEXIS 27">*32  and remained until five o'clock in the afternoon for six and sometimes seven days a week.  When the company put on a night shift petitioner often went to the plant in the evening to check up on operations.  At various times, in connection with the business of the Darkwood Co., petitioner made trips to the Curtiss factories and other points.The time petitioner devoted to the Darkwood Co. rendered it impossible for him to carry on his regular business as a commission salesman for several metal die manufacturers. He employed John B. Kildea to take over the business of selling dies for these other principals, which included the DeLuxe Die Works and three of the latter's subsidiary organizations, to wit: Werner Tool & Manufacturing Co., Top Screw & Nut Co., and Motor Truck Refrigeration Co.  Kildea carried on this work under general orders from petitioner, who received the regular commissions on sales, from which he paid a salary to Kildea.During the year 1942 petitioner was approached by the H. & W. Corporation, which had contracts for supplying certain parts to Curtiss.  It had become necessary for the H. & W. Corporation to maintain a contract with Curtiss to settle its problems 1949 U.S. Tax Ct. LEXIS 27">*33  that came up from time to time. H. & W. was aware of petitioner's connection with the officers and engineers of Curtiss and his experience with its manufacturing processes involved under its contracts.  As a result, H. & W. employed petitioner at a salary of $ 1,500 per month to represent them with Curtiss in connection with any problem arising under its contracts.  13 T.C. 845">*848  From time to time H. & W. Corporation would send a petitioner blueprints covering parts involved and an explanation of the problem.  Petitioner, on his next trip to Curtiss in connection with the Darkwood Co. would also take up with Curtiss the problems of H. & W. Corporation.  The work performed by petitioner for the H. & W. Corporation did not require his absence from Detroit for a longer period than was necessitated in handling the business of the Darkwood Co.  The services performed by petitioner for the H. & W. Corporation were valuable, since it relieved them of employing an engineering staff.  Such work as petitioner performed for the H. & W. Corporation did not require him to devote more than an hour per week of his time, on the average.  Petitioner, on his trips to Curtiss, paid his own expenses.  In1949 U.S. Tax Ct. LEXIS 27">*34  certain cases he was reimbursed for his expenses by the H. & W. Corporation.  In 1942 petitioner was considered "a part-time employee" by H. & W. Corporation.  Petitioner's activities for the H. & W. Corporation and in the general supervision of Kildea in carrying on the die sales commission business were known to the officers of the Darkwood Co. and no objection was raised thereto.During 1942 petitioner received income in the following amounts from the sources specified:William Darkwood Co$ 81,183.51H. & W. Corporation11,250.00DeLuxe Die Works5,968.06Werner Tool & Manufacturing Co799.77Top Screw & Nut Co247.32Motor Truck Refrigeration Co231.73Total99,680.39In his income tax return for 1942 petitioner described himself as "sales engineer self [employed.]" In his 1943 return he stated his occupation to be "manufacturers' agent."OPINION.The first question presented relates to our jurisdiction to entertain this petition.  The respondent contends that petitioner is a subcontractor within the meaning of section 403 (a) (5) (ii) of the Renegotiation Act of 1942 as amended, 11949 U.S. Tax Ct. LEXIS 27">*36  and, since the 13 T.C. 845">*849  appeal is from a determination of the Secretary1949 U.S. Tax Ct. LEXIS 27">*35  of the Navy, we lack jurisdiction under section 403 (e) (2) of the Renegotiation Act of 1943.  2. Whether petitioner is authorized to petition this Court for a review of such a determination depends upon whether or not he is within the class excepted from the provisions of section 403 (a) (5) (ii).  Petitioner concedes that if it is determined that he was not a "full-time employee" of the Darkwood Co. in 1942, we lack jurisdiction.  We think it is within our province to decide this preliminary question of coverage.  ; cf.  . What does this record establish was the legal status of petitioner with respect to the Darkwood Co. during the fiscal year 1942?  Was he a "full-time employee" of that company, as petitioner contends, or was he an independent contractor or agent, as contended by the respondent?The Renegotiation Act does not define the term "full-time employee" as used in section 403 (a) (5) (ii) thereof.  In the absence of a statutory definition, are we to apply the common law control test which the courts have generally applied in distinguishing between an "employee" and an "independent contractor" as the criterion?The Renegotiation Act is a war measure, unknown to the common 1949 U.S. Tax Ct. LEXIS 27">*37  law. Its purpose is to prevent those engaged in war contracts from realizing excessive profits, and the terms used therein should, if reasonably possible, be interpreted and construed to give effect to its proposes.  Cf.  ; . We think the purposes of the statute will be served if the term "employee" is given its ordinary and usual interpretation as comprising one who meets the test of the generally established concept of legal relationship of employer and employee.  Such a relationship exists where the employer retains the right to direct the manner in which the business is to be done, as well as the result to be accomplished.  . An "independent contractor" is most frequently defined as one who contracts to do certain work according to his own methods and without being subject 13 T.C. 845">*850  to the control of his employer, except as to the product or result of his work.  27 Am. Jur., Independent Contractor, § 2, p. 481.Applying1949 U.S. Tax Ct. LEXIS 27">*38  these concepts to this record, we find no support for petitioner's contention that he was a "full-time employee" of the Darkwood Co. during the fiscal year 1942.  Petitioner's relationship to that company is set out in a written agreement in the form of a letter, dated April 10, 1941, which appears in full in our findings of fact. It is there stated that "the entire development of these bushings, together with the sale of same, will depend entirely on you, or someone delegated by you." Such language is appropriate only where an independent relationship was intended to be created.  Where one who contracts to perform specified work has the choice whether it is to be done by himself personally or by his delegate, it is apparent that the employer has not retained that control of the time, manner, and method of executing the work essential to create the legal relationship of employer and employee.  The contract, we think, makes it clear that the Darkwood Co. reserved merely the right to require certain definite results, and reposes in the petitioner a wide discretion in the conduct of his activities.  The record establishes that during the fiscal year 1942 petitioner performed substantial1949 U.S. Tax Ct. LEXIS 27">*39  services for other concerns without complaint from the Darkwood Co.  Such evidence tends to support the view that petitioner could direct and control the manner in which he could execute his duties.  The testimony of petitioner, which is supported by other witnesses who were employees of the Darkwood Co., that petitioner devoted his entire business days, of approximately nine hours on an average of six days, and often went to the factory in the evening when the company operated a night shift, would establish that he was a "full-time employee," if his status were that of an employee at all.  If, however, petitioner, under his contract with the Darkwood Co., were free to determine what time he should devote to the prosecution of the work he had undertaken to perform, such evidence has no important bearing upon his legal relationship to that company.  Nor does the testimony of other employees that they regarded him as an "employee" have any probative value as evidence as to his actual legal relationship to that company.  Such evidence at best is merely an expression of the opinion of the witnesses with respect to the question presented for our determination.We find nothing in the contract, 1949 U.S. Tax Ct. LEXIS 27">*40  the nature of the employment, or the surrounding circumstances to satisfactorily establish that petitioner was subject to the control and direction of the Darkwood Co., so as to justify the conclusion that his legal relationship was that of an employee.  We conclude, upon this record, that, with respect to the Darkwood Co., petitioner was an independent contractor or agent 13 T.C. 845">*851  during the fiscal year 1942 here involved.  Petitioner was, therefore, a subcontractor within the meaning of section 403 (a) (5) (ii) of the Renegotiation Act of 1942.  Under section 403 (e) (2) of the Renegotiation Act of 1943, we lack further jurisdiction, and so dismiss petitioners appeal in Docket No. 626-R, with respect to the fiscal year 1942.  Petitioner's motion to dismiss his appeal in Docket No. 696-R, with respect to the fiscal year 1943, is granted.Orders will be entered accordingly.  Footnotes1. Sec. 403 (a).  For the purposes of this section --* * * *(5) The term "subcontract" means --* * * *(ii) any contract or arrangement (other than a contract or arrangement between two contracting parties, one of which parties is found by the Secretary to be a bona fide executive officer, partner, or full-time employee of the other contracting party),(A) any amount payable under which is contingent upon the procurement of a contract or contracts with a Department or of a subcontract or subcontracts thereunder, or determined with reference to the amount of such a contract or subcontract or such contracts or subcontracts, or(B) under which any part of the services performed or to be performed consists of the soliciting, attempting to procure, or procuring a contract or contracts with a Department or a subcontract or subcontracts thereunder:* * * *↩2. Sec. 403 (e).  * * ** * * *(2) Any contractor or subcontractor (excluding a subcontractor described in subsection (a) (5) (B↩)) aggrieved by a determination of the Secretary made prior to the date of the enactment of the Revenue Act of 1943, with respect to a fiscal year ending before July 1, 1943, as to the existence of excessive profits, which is not embodied in an agreement with the contractor or subcontractor, may, within ninety days (not counting Sunday or a legal holiday in the District of Columbia as the last day) after the date of the enactment of the Revenue Act of 1943, file a petition with the Tax Court of the United States for a redetermination thereof * * *.  [Italics supplied.]