Court Opinion

ID: 4588985
Source: CourtListenerOpinion
Date Created: 2020-11-20 18:43:15.732563+00
Date Added: 2024-06-11T07:50:10.641662
License: Public Domain

Mitchell Golbert, Petitioner, v. Renegotiation Board, RespondentGolbert v. Renegotiation BoardDocket No. 922-R.United States Tax Court28 T.C. 728; 1957 U.S. Tax Ct. LEXIS 147; June 27, 1957, Filed *147 Held, that petitioner was not an "employee" of Ozone Metal Products Corp. during the year 1952, within the meaning of section 103 (g) (3) of the Renegotiation Act of 1951, and that, therefore, petitioner's contract with Ozone is not exempt from renegotiation. J. Bertram Wegman, Esq., for the petitioner.Arthur H. Fribourg, Esq., for the respondent.  Harron, Judge.  HARRON *728  The respondent determined by appropriate order that petitioner realized excessive profits during 1952 in the amount of $ 31,112.  There is no issue about the amount of profits which the respondent determined to be excessive.  The only issue is whether petitioner was an independent contractor, *148  i. e., a subcontractor within the definition of a subcontract in section 103 (g) (3) of the Renegotiation Act of 1951, as the respondent has determined, or a full-time employee of a contracting party, Ozone Metal Products Corp., so as to be exempt from renegotiation under the exception contained in section 103 (g) (3), as the petitioner contends.FINDINGS OF FACT.Petitioner is a resident of Laurelton, Long Island, New York.  During his entire adult life, petitioner has been engaged in the business of selling. In 1952, he was about 55 years of age.In 1946, petitioner acted as a sales representative for Lion Mechanical Works, hereinafter called Lion, a manufacturer of hydraulic equipment for aircraft manufacturers. Petitioner, during 1946, was also a sales representative for at least one other firm, National Pumps.Ozone Metal Products Corp., hereinafter called Ozone, manufactured sheet metal, tools and dies, and metal stampings. Its place of business is located in Ozone Park, Long Island.  Philipp Wiebel was president and his wife, Rose Wiebel, was secretary of Ozone.In December 1946, petitioner offered to render services to Ozone in obtaining business from aircraft manufacturers. *149  An oral agreement was entered into between Ozone and petitioner, whereby petitioner was to receive commissions of 10 per cent on all the business he obtained for Ozone, plus 1 per cent of every $ 100,000 of business.Petitioner continued to represent Ozone under the above contract until the end of 1948.  In November 1948, the Wiebels requested petitioner to agree to reduce his commission.  Petitioner agreed to reduce his commission to 7 1/2 per cent, provided he was given a 2-year contract.  A contract, dated January 1, 1949, was drafted by the attorney *729  for the Wiebels and Ozone.  It was signed by petitioner and Philipp Wiebel, as president of Ozone, at some time between August and November 1949.At petitioner's request, the contract recited that he was "independently engaged in the business of selling merchandise and services." The contract is as follows:This Agreement made this 1st day of January, 1949, between OZONE METAL PRODUCTS, INC., a domestic corporation having its principal place of business at No. 101-32 -- 101st Street, Ozone Park, N. Y., hereinafter designated as party of the first part, and MITCHELL GOLBERT, having his place of business at No. 135-08 -- 231st*150  Street, Laurelton, N. Y., hereinafter designated as party of the second part, Witnesseth:Whereas, the party of the first part is engaged in the tool, die, metal stamping and sheet metal business and in the general manufacture of metal products, andWhereas, the party of the second part is independently engaged in the business of selling merchandise and services of the aforesaid character, and has his office and place of business at No. 135-08 -- 231st Street, Laurelton, N. Y., andWhereas, the party of the first part is desirous of selling its said merchandise and services, and for that purpose is desirous of hiring the services of the party of the second part all as herein more particularly provided,Now, Therefore, it is mutually agreed as follows:1. The party of the first part hereby retains the party of the second part to act as one of its sales representatives or brokers of its commodities and services effective as of January 1st, 1949.  Estimates on jobs and prices on merchandise to be fixed solely by the party of the first part.2. The party of the second part agrees to act as an independent sales representative and broker of the party of the first part and to use and exercise*151  his best endeavors, at such times and places as in his discretion may be suitable and advisable for the furtherance of the business of the party of the first part during the term of this agreement.3. All expenses for traveling, maintenance, entertainment, office, clerical and general selling expenses that may be incurred by the party of the second part in connection with this agreement shall be borne wholly and completely by him, and the party of the first part shall not be in any way responsible or liable therefor.4. The parties agree that this contract shall remain in full force and effect until the 31st day of December, 1950, when it shall terminate and come to an end.5. The party of the first part agrees to deliver to the party of the second part on the 10th day of each and every month during the term of this agreement, a statement of all shipments and the prices thereof made of all business brought to the party of the first part by the party of the second part during the previous month, and to pay to the party of the second part thereon a commission of seven and one-half per cent of the gross amount of the said monthly statement on such shipments.6. The party of the first*152  part further agrees that the party of the second part shall have a drawing account of One Hundred ($ 100) Dollars per week for each and every week during the term of this agreement to be credited against commissions.* * * *8. It is understood and agreed that any and all rights of the party of the second part to represent the party of the first part or to obtain orders and contracts *730  for it shall expire and come to an end as aforementioned on December 31st, 1950, and that the party of the second part shall not be entitled to commission or compensation of any kind from the party of the first part on and after such date except for orders actually brought in by the party of the second part and accepted by the party of the first part prior to said 31st day of December, 1950.9. It is understood and agreed that the party of the second part is the representative and broker of other persons or corporations engaged in businesses similar to that of the party of the first part, but the party of the second part may not represent any other person or corporation in the solicitation of orders for tools, dies, metal stamping and sheet metal products.  The party of the second part has no*153  authority to sign estimates, contracts or memoranda of any kind on behalf of the party of the first part or to bind the party of the first part in any way or manner whatsoever.The business of National Pumps was terminated during 1947.  During 1948 and 1949, petitioner represented only Ozone and Lion.  In December 1949, petitioner learned that Lion was desirous of selling its hydraulic business, and he so informed the Wiebels, who became interested in having Ozone purchase Lion's hydraulic business.  Petitioner then requested the Wiebels to give him written assurance that if Lion was purchased by Ozone, petitioner would continue to act as sales representative both for Ozone and for the business of Lion which would be owned by Ozone.  As a result, on December 28, 1949, Rose Wiebel, as secretary of Ozone, signed the following memorandum:It is herewith agreed that if a satisfactory arrangement can be reached to purchase Lion Mechanical Works, Inc. Mr. M. Golbert's contract will be extended to five (5) years.Petitioner then arranged a meeting between the Wiebels and Greenbaum, the owner of Lion.  When all the terms of the sale had been agreed to between the Wiebels and Greenbaum, *154  the Wiebels told petitioner that their attorney, Gabler, was opposed to their closing the deal, because the Wiebels were not experienced in the hydraulic business operated by Lion.  In January 1950, a meeting was held at the office of Gabler, at which were present the Wiebels, Gabler, and petitioner.  Gabler said that he would withdraw his opposition to the purchase of Lion by Ozone, if Ozone could obtain the exclusive services of petitioner, since petitioner had the experience and contacts necessary for sale of the hydraulic equipment manufactured by Lion to aircraft companies.  It was then orally agreed between petitioner and the Wiebels, acting for Ozone, that the existing contract between Ozone and petitioner was to be extended to December 31, 1953, and that such contract was to be modified to provide that petitioner would represent only Ozone.Gabler was to draw a written contract embodying the terms of the oral agreement between petitioner and Ozone, but no written contract was ever presented to petitioner despite the fact that he requested one from the Wiebels on several occasions during 1950, 1951, and 1952.*731  The sale of Lion to Ozone was consummated in February 1950. *155  Petitioner received a commission on the sale, from Greenbaum, in the amount of $ 1,800.During 1952, petitioner devoted his full time to acting as sales representative for Ozone, under the oral agreement made between petitioner and Ozone in January 1950.  He obtained contracts for Ozone with various aircraft manufacturing companies, for manufacture of component parts of aircraft produced by such companies under contracts with the United States Air Force.  He obtained approximately 95 per cent of the business received by Ozone during 1952.  Most of Ozone's business was done with two companies, Republic Aircraft and Sikorsky Aircraft.During 1952, petitioner was in contact with buyers and other officials of aircraft companies with which Ozone did business.  He obtained from such officials permission for Ozone to quote prices on contracts to be awarded by such companies, and he negotiated the terms of contracts between Ozone and aircraft companies.  He also performed such duties as obtaining written confirmation of oral orders received by Ozone from aircraft companies, obtaining materials and machinery required by Ozone, and arranging for deferred payment of bills which Ozone was not*156  able to immediately pay.  He spent considerable time in arranging for rental by the Air Force to Ozone of certain essential manufacturing equipment.On his income tax return for 1952, petitioner reported no income from wages, salaries, bonuses, commissions, or other compensation.  He reported total receipts from the business of acting as a "Manufacturers representative," in the amount of $ 110,271.08, all of which represented commissions received from Ozone.  He deducted business expenses in the amount of $ 23,904.31, for telephone, business gifts, legal and accounting, printing and postage, restaurant and clubs, office supplies, hotels, insurance, theater tickets, trade publications, and auto expense, plus $ 360 for rent on business property, or a total of $ 24,264.31.  He therefore reported net business profit in the amount of $ 86,006.77.  The only other income reported by petitioner in his 1952 return was the amount of $ 400 from interest on bank accounts.Petitioner paid Federal self-employment tax for the year 1952.  No withholding taxes or social security taxes were deducted from petitioner's commissions by Ozone, during 1952.  Petitioner urged upon the Wiebels the view that*157  he was independent and not an employee of Ozone; the Wiebels so regarded him.In order to add to his prestige in calling on customers, petitioner had business cards printed representing himself as "sales manager" of Ozone, with the consent of Ozone.Petitioner was not reimbursed for any expenses by Ozone.  He maintained an office in his home.  He was not assigned any office space, *732  or a desk, or a secretary, or a telephone, in Ozone's offices.  When he was in Ozone's offices, he used whatever office space, desk, secretary, or telephone, which happened to be available at the time, if necessary.Petitioner paid New York State unincorporated business tax for the years 1950, 1951, and 1952.  On April 15, 1954, after renegotiation proceedings had been commenced in his case, he filed applications for refund with the New York State Income Tax Bureau, on the ground that he was an employee and therefore not subject to the New York State unincorporated business tax. After a hearing held in New York City on September 29, 1955, the Department of Taxation and Finance of New York State determined that petitioner was not subject to the unincorporated business tax for the years 1950, 1951, *158  and 1952, and refund was made to him.  Under section 386 of the New York State Tax Law, an individual is not subject to the unincorporated business tax "with respect to compensation for services rendered by him as an employee * * *."During 1952, the manner in which petitioner conducted his business of selling the products of Ozone was not subject to the direction or control of Ozone, but Ozone controlled only the result of petitioner's business activities, namely, the obtaining of sales contracts.  Petitioner was free to call upon any customers he wished, although the Wiebels sometimes gave him leads to business of which they had heard.  Ozone was free to reject any business obtained by petitioner, and the Wiebels sometimes told petitioner that they would not be interested in business of a certain kind or from certain companies.  Customers of Ozone to which petitioner sold often supplied Ozone with materials or equipment, and the Air Force sometimes rented equipment to Ozone.  The Wiebels sometimes requested petitioner to expedite shipments of materials and equipment from such customers, or to arrange for the renting of equipment from the Air Force, but the Wiebels never gave petitioner*159  instructions as to how he was to conduct his business activities.  Petitioner reported to the Ozone offices at his own discretion, and he decided when he would take time off.Petitioner was not a full-time employee of Ozone during 1952.OPINION.The only question is whether petitioner was a full-time employee of Ozone during the year 1952.  Respondent determined that a contract between petitioner and Ozone is subject to renegotiation, and that petitioner realized excessive profits from the contract during 1952, which must be eliminated under the Renegotiation Act of 1951.  The contract between petitioner and Ozone is subject to renegotiation only if it was a "subcontract" as defined in subsection *733  (g) (3) 1 of section 103 of the Renegotiation Act of 1951.  That subsection contains an exception which makes it inapplicable to any contract, one of the parties to which is a "full-time employee" of the other contracting party. Petitioner contends that he was a full-time employee of Ozone and that, therefore, the contract between him and Ozone comes within the exception.  Respondent concedes that petitioner devoted his full time to work for Ozone under the contract, but it contends*160  that, nevertheless, petitioner was not an employee of Ozone, but was an independent contractor. Petitioner raises no question as to the amount of excessive profits determined by respondent, $ 31,112, and, therefore, if petitioner was not an employee of Ozone during 1952, respondent's determination must be sustained.*161 The burden is upon petitioner to prove that he was an employee of Ozone during the year 1952.  Nathan Cohen v. Secretary of War, 7 T. C. 1002; Aircraft Screw Products Co., 8 T. C. 1037, 1044; Edell v. United States, 28 T.C. 601">28 T. C. 601.In A. P. Dowell, Jr. v. Forrestal, 13 T. C. 845, this Court defined the term employee for the purposes of section 403 (a) (5) (ii) of the Renegotiation Act of 1942, as amended, which is equivalent to section 103 (g) (3) of the Renegotiation Act of 1951 here involved.  We there laid down the rule that an employee is one who is subject to the direction of an employer as to the manner in which he conducts his business, whereas an independent contractor is one who is subject to the control of one who retains his services only as to the result of his work.  We said in the Dowell case (pp. 849-850):The Renegotiation Act is a war measure, unknown to the common 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*162  and construed to give effect to its proposes.  Cf.  United States v. Silk, 331 U.S. 704">331 U.S. 704; National Labor Relations Board v. Hearst Publications, Inc., 322 U.S. 111">322 U.S. 111. 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. Singer Manufacturing Co. v. Rahn, 132 U.S. 518">132 U.S. 518, 523. An "independent contractor" is most frequently defined as one who contracts to *734  do certain work according to his own methods and without being subject to the control of his employer, except as to the product or result of his work.  27 Am. Jur., Independent Contractor, § 2, p. 481.Also, in Irene L. Bell, 13 T. C. 344, 350, we held that petitioner was not an employee for the purposes of section 22 (n) (1) of the Internal Revenue*163  Code of 1939, because she was not subject to supervision as to the manner in which she worked.It is clear that in their contract dated January 1, 1949, petitioner and Ozone intended that petitioner was to be retained by Ozone as an independent contractor, and not as an employee.  See Farm Bureau Cooperative Mill & Sup. v. Blue Star Foods, 137 F. Supp. 486">137 F. Supp. 486, 492. Petitioner does not argue otherwise.  Under that contract, petitioner was "to act as an independent sales representative and broker" of Ozone, and he was to further the business of Ozone "at such times and places as in his discretion may be suitable and advisable * * *." Ozone retained control only over the result of petitioner's work, the obtaining of business, and it did not direct the manner in which petitioner was to produce that result.Petitioner argues, however, that the contract dated January 1, 1949, was modified by an oral agreement made at a meeting held in the office of Ozone's attorney, Gabler, in January 1950, under which he became an employee of Ozone.  The record fails to support this argument.  Even petitioner's own testimony as to what took place at the meeting in Gabler's*164  office does not show that there was any agreement or even discussion concerning a change from petitioner's status as an independent contractor. On the other hand, the testimony of respondent's witness, Rose Wiebel, secretary of Ozone, who was present at the meeting, shows clearly that the only oral changes made in the contract were that it was extended to December 31, 1953, and that petitioner was to work exclusively for Ozone.Gabler and Philipp Wiebel, president of Ozone, were also present at the meeting of January 1950 in Gabler's office, but they were not called to testify.  Respondent had no duty to call these two witnesses.  Since petitioner had the burden of proof and these two witnesses were equally available to him, it was incumbent on him to call them, if he thought that their testimony would further his case.The fact that the contract between petitioner and Ozone denominated him an "independent sales representative" is not in itself determinative of the issue; we must look also to the actual practice of relations between petitioner and Ozone.  Cf.  Hargis v. Wabash Railroad Co., 163 F. 2d 608, 611-612; In re Realty Hotels, 137 N. Y. S. 2d 380.*165  As was said by the Supreme Court of Illinois, in Kehrer v. Industrial Commission, 6 N. E. 2d 635, 637-638:It is impossible * * * to lay down a rule by which the status of men working and contracting together can be accurately defined in all cases as employees or independent *735  contractors.  Each case must depend on its own facts and ordinarily no one feature of the relation is determinative but all must be considered together.  * * * The most important single factor is the right of the employer to control the manner of doing the work. * * *Petitioner has failed to establish that in actual practice he was an employee of Ozone.  In support of his contention, he has offered only his own self-serving testimony that he was instructed by the Wiebels as to what customers to call on and to perform other duties. On the contrary, the record affirmatively establishes that petitioner acted as an independent contractor and not as an employee.  Rose Wiebel, a disinterested witness, testified that petitioner was free to call on whatever customers he wished, to report to Ozone's office when he felt that he ought to, and to take time off when he wished. *166  Petitioner was paid on a commission basis, he maintained his own office in his home, and he paid all his own expenses.The fact that petitioner was sometimes given leads to business by the Wiebels is in no way inconsistent with his status as an independent contractor, since he was free to follow up these leads or not.  Nor does the fact that he performed duties such as obtaining materials and machinery, and arranging for deferred payment of Ozone's bills, sometimes at the request of the Wiebels, indicate that petitioner was an employee; petitioner's commissions were payable only when Ozone made shipments, and the successful performance of such duties enabled Ozone to complete its shipments. The fact that petitioner used business cards representing himself as "sales manager" of Ozone with Ozone's consent, does not show that he was an employee of Ozone, because this was done only in order to aid petitioner in his selling activities.The fact that Ozone kept control of such matters as prices and delivery schedules, and that petitioner had no authority to bind Ozone on contracts, does not make him an employee of Ozone.  Cf.  Conasauga River Lumber Company v. Wade, 221 F. 2d 312,*167  certiorari denied 350 U.S. 949">350 U.S. 949. The same is true of the fact that the Wiebels told petitioner that they were not interested in certain business, since Ozone was not bound to accept any business brought in by petitioner.It is clear that petitioner considered himself an independent contractor, and not an employee, during 1952.  He reported his income on that basis for tax purposes, and he frequently urged that view upon the Wiebels.  He also paid New York State unincorporated business tax for 1952.  The fact that an administrative body of the State of New York, in 1955, determined that petitioner was not subject to New York unincorporated business tax, is not binding or persuasive on this Court.  We do not know what evidence was adduced before that body, or what was the basis of its decision.*736  It is clear also that Ozone considered petitioner an independent contractor during 1952.  It did not deduct either withholding taxes or social security taxes from petitioner's compensation.After consideration of all of the evidence, our conclusion is that petitioner was not an employee of Ozone, within the meaning of section 103 (g) (3), and that, therefore, *168  his profits derived from his contract with Ozone are not exempt from renegotiation under the Renegotiation Act of 1951.An order will be issued in accordance herewith.  Footnotes1. (g) Subcontract. -- The term "subcontract" means --(3) any contract or arrangement (other than a contract or arrangement between two contracting parties, one of whom is found by the Board to be a bona fide executive officer, partner, or full-time employee of the other contracting party) under which -- (A) any amount payable is contingent upon the procurement of a contract or contracts with a Department or of a subcontract or subcontracts; or(B) any amount payable is determined with reference to the amount of a contract or contracts with a Department or of a subcontract or subcontracts; or(C) 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.↩