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Commissioner of Internal Revenue v. Aluminum Co.

April 28, 1944

COMMISSIONER OF INTERNAL REVENUE
v.
ALUMINUM CO. OF AMERICA.



On Petition for Review of the Decisions of the United States Board of Tax Appeals.

Author: Jones

Before JONES and McLAUGHLIN, Circuit Judges, and KIRKPATRICK, District Judge.

JONES, Circuit Judge.

This is a petition by the Commissioner of Internal Revenue for a review of decisions of the Board of Tax Appeals (47 B.T.A. 543). The question involved is whether the Act of March 27, 1934, c. 95, 48 Stat. 503, 34 U.S.C.A. ยง 496,*fn1 commonly known as the "Vinson Act", is applicable to profits made by the respondent on sales of materials under the circumstances disclosed by the record in this case.

Sec. 3 of the Vinson Act provides in part here material -

" * * * That no contract shall be made by the Secretary of the Navy for the construction and/or manufacture of any complete naval vessel or aircraft, or any portion thereof, herein, heretofore, or hereafter authorized unless the contractor agrees [inter alia] -

"(b) To pay into the Treasury profit * * * in excess of 10 per centum of the total contract price, such amount to become the property of the United States: Provided, That if such amount is not voluntarily paid the Secretary of the Treasury may collect the same under the usual methods employed under the internal revenue laws to collect Federal income taxes.

"(c) To make no subdivisions of any contract or subcontract for the same article or articles for the purpose of evading the provisions of this Act, but any subdivision of any contract or subcontract involving an amount in excess of $10,000 shall be subject to the conditions herein prescribed.

"(e) To make no subcontract unless the subcontractor agrees to the foregoing conditions."

The facts are undisputed and, as found by the Board of Tax Appeals from the stipulation of the parties or uncontroverted averments of the pleadings or otherwise from the record, disclose the following situation.

During the years 1937 and 1938 the respondent, which was engaged in the business of producing, purchasing and selling aluminum and its alloys either as ingot or in partly or wholly fabricated forms, delivered, pursuant to job contracts, aluminum materials to prime contractors engaged in the construction of complete naval vessels. As stated by the Board, the term, "prime contract", designates "a contract made directly with the Government of the United States and by its terms subject to the provisions of the Vinson Act." [47 B.T.A. 544] We are presently concerned with the respondent's profits on materials which it sold under job contracts or on orders to prime contractors for use in specified naval construction.

Under a typical job contract the respondent agreed to furnish, and the prime contractor agreed to buy, not less than nor more than designated amounts of described aluminum material for use in the construction of a named naval vessel or vessels. Such aluminum material was to be sold and paid for at prices stated in the contract for particular classes of material, reference being made for prices to the respondent's regular published price list incorporated in the contract, but the purchaser was not required to buy any definite quantity of any particular class of material.

One of the job contracts entered into by the respondent was with the Bethlehem Shipbuilding Corporation and called for the furnishing and purchasing of standard aluminum products for use in the construction of eleven identified naval vessels. In addition the respondent had job contracts with six other shipbuilding companies which provided for the respondent's furnishing aluminum materials for use in the construction of twelve specified naval vessels. It is unnecessary to detail the years in which the naval vessels above referred to were completed. Under the Vinson Act, as amended by the Act of 1936, supra, the calculation of excess profits was to be upon the basis of all contracts completed during the year. For present purposes, it is sufficient to state that the aluminum materials furnished by the respondent under its job contracts were delivered and used in the construction of naval vessels in the years here involved.

Save for certain quilting bolt nuts made specially for use in naval vessels, all of the aluminum materials furnished by the respondent under the seven job contracts above referred to were regular commercial products. Such products were regularly fabricated and sold by the respondent and were identical in physical and chemical properties, specification and composition with those fabricated and sold to customers generally for purposes other than naval construction. At least ninety-eight per cent of the commercial products sold by the respondent to its many general customers were used by them for purposes unrelated to construction embraced by the Vinson Act. The prices charged for the materials furnished under the respondent's job contracts were identical with the prices charged other purchasers for like ...


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