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Sec.

Part 1476

1476.1 Statutory provision.

Review by the Tax Court

AUTHORITY: Section 1476.1 issued under section 109, Pub. Law 9, 82d Cong. Interpret or apply section 108, Pub. Law 9, 82d Cong.

1476.1 Statutory provision.-Section 108 of the act provides as follows:

Any contractor or subcontractor aggrieved by an order of the Board determining the amount of excessive profits received or accrued by such contractor or subcontractor may

(a) if the case was conducted initially by the Board itself-within ninety days (not counting Sunday or a legal holiday in the District of Columbia as the last day) after the mailing under section 105 (a) of the notice of such order, or

(b) if the case was not conducted initially by the Board itself-within ninety days (not counting Sunday or a legal holiday in the District of Columbia as the last day) after the mailing under section 107 (e) of the notice of the decision of the Board not to review the case or the notice of the order of the Board determining the amount of excessive profits,

the Tax Court to finally determine the amount, if any, of excessive profits shall not be treated as a proceeding to review the determination of the Board, but shall be treated as a proceeding de novo. For the purposes of this section the court shall have the same powers and duties, insofar as applicable in respect to the contractor, the subcontractor, the Board, and the Secretary, and in respect to the attendance of witnesses and the production of papers, notice of hearings, hearings before divisions, review by the Tax Court or decisions of divisions, stenographic reporting, and reports of proceedings as such court has under sections 1110, 1111, 1113, 1114, 1115, (a), 1116, 1117 (a), 1118, 1120, and 1121 of the Internal Revenue Code in the case of a proceeding to redetermine a deficiency. In the case of any witness for the Board, the fees and mileage, and the expenses of taking any deposition shall be paid out of appropriations of the Board available for that purpose, and in the case of any other witnesses shall be paid, subject to rules prescribed by the court, by the party at whose instance the witness appears or the deposition is taken. The filing of a petition under this section shall operate to stay the execution of the order of the Board under subsection (b) of section 105 only if within ten days after the filing of the petition the petition files with the Tax Court a good and sufficient bond, approved by such court, in such amount as may be fixed by the court. Any amount collected by the United States under an order of the Board in excess of the amount found to be due under a determination of excessive profits by the Tax Court shall be refunded to the contractor or subcontractor with interest thereon at the rate of 4 per centum per annum from the date of collection by the United States to the date of refund.

file a petition with the Tax Court of the United States for a redetermination thereof. Upon such filing such court shall have exclusive jurisdiction, by order, to finally determine the amount, if any, of such excessive profits received or accrued by the contractor or subcontractor, and such determination shall not be reviewed or redetermined by any court or agency. The court may determine as the amount of excessive profits an amount either less than, equal to, or greater than that determined by the Board. A proceeding before

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(10-17-56)

Sec.

Part 1490

1490.1 Introduction.

1490.2 Statutory provisions.

Brokers and Manufacturers' Agents

1490.3 Limited exemption of subcontracts for architectural, design or engineering services.

1490.4 Application of the act.

1490.5 Filing of financial statement.

1490.6 Determination of renegotiable business under section 103 (g) (3) of the act.

1490.7 Determination of excessive profits under subcontracts described in section 103 (g) (3) of the act.

1490.8 Efficiency of the contractor.

1490.9 Reasonableness of costs and profits. 1490.10 Capital employed.

1490.11 Extent of risk assumed.

1490.12 Contribution to the defense effort.

1490.13 Character of business.

AUTHORITY: 88 1490.1 to 1490.13 issued under sec. 109, Pub. Law 9, 82d Cong.

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(A) Any amount payable is contingent upon the procurement of a contract or contracts with a Department or of a subcontract or subcontracts; or

1490.1 Introduction.- Subcontracts scribed in section 103 (g) (3) of the act are substantially different from other contracts and subcontracts subject to the act, both in the nature of the services rendered thereunder and their relation to the defense effort. Because of these basic differences, the application of the act to such subcontracts gives rise to correspondingly different problems and considerations. The regulations in this part apply solely to subcontracts described in section 103 (g)(3) of the act. As used in this part, except when the context clearly indicates otherwise, the term "contractor" means any person holding one or more subcontracts described in section 103 (g) (3) of the act.

(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

1490.2 Statutory provisions.-(a) Coverage.-Section 103 (g) (3) of the act provides in part as follows:

The term "subcontract" means

(1) (2)

(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.

(b) Minimum amount subject to renegotiation.-Section 105 (f) (2) of the act provides as follows:

If the aggregate of the amounts received or accrued during a fiscal year (and on or after the applicable effective date specified in section 102 (a) by a subcontractor, and all persons under control of or controlling or under common control with the subcontractor, under subcontracts described in section 103 (g) (3) is not more than $25,000, the receipts or accruals from such subcontracts shall not, for such fiscal year, be renegotiated under this title. If the aggregate of such amounts received or accrued during the fiscal year under such subcontracts is more than $25,000, no determination of excessive profits to be eliminated for such year with respect to such subcontracts shall be in an amount greater than the amount by which such aggregate exceeds $25,000.

(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

(10-17-56)

(c) Computation of aggregate receipts or accruals.--Under Section 105 (f) (3) of the act, in computing its aggregate receipts or accruals for any fiscal year ending after June 30, 1956, a broker, agent or other person holding a subcontract described in section 103 (g) (3) of the act must include all commissions or other compensation from its parent or other related principal which are referable to renegotiable prime contracts or subcontracts. See § 1458.2 (b) of this subchapter.

1490.3 Limited exemption of subcontracts for architectural, design or engineering services.-Certain subcontracts described in section 103 (g) (3) of the act have been exempted by the Board under certain circumstances. Such exemption is limited to subcontracts "for architectural, design or engineering services, no part of which services is or was related to the effecting or procuring of a contract with a Department or a subcontract, if the aggregate renegotiable business of the subcontractor holding such subcontracts and all per

sons under control of or controlling or under common control with such subcontractor during a fiscal year of 12 months is not more than $250,000, in the case of a fiscal year ending before June 30, 1953, or $500,000, in the case of a fiscal year ending on or after June 30, 1953, or $1,000,000, in the case of a fiscal year ending after June 30, 1956, or, during a fiscal year which is a fractional part of 12 months, is not more than the same fractional part of $250,000, $500,000, or $1,000,000, as the case may be" (see § 1455.3 (b) (6) of this subchapter).

1490.4 Application of the act.-Subcontracts described in section 103 (g) (3) of the act are subject to renegotiation under the act to the extent of amounts received or accrued on or after the date applicable to the prime contract to which the subcontract relates (see § 1452.2 of this subchapter).

1490.5 Filing of financial statement.The regulations pertaining to this subject are set forth in § 1470.3 of this subchapter. It will be noted therefrom that no special form is prescribed for persons holding subcontracts described in section 103 (g) (3) of the act. Every such person, if required by the first sentence of section 105 (e) (1) of the act to file a financial statement with the Board for a fiscal year, shall adapt the Standard Form of Contractor's Report to his particular needs. Any such person who elects to file a financial statement with the Board for a fiscal year pursuant to the second sentence of section 105 (e) (1) of the act may file the Statement of Non-Applicability.

of renegotiable

1490.6 Determination business under section 103 (g) (3) of the act. (a) Receipts and accruals which are derived from any contract or arrangement described in section 103 (g) (3) of the act are renegotiable only to the extent that they are contingent upon the procurement of a renegotiable prime contract or subcontract, or are determined with reference to the amount of a renegotiable prime contract or subcontract, or are received or accrued for soliciting, attempting to procure, or procuring a renegotiable prime contract or subcontract.

Example. X Company, only part of whose sales are subject to renegotiation, enters into a sales commission Pursuant to such contract with a sales representative. contract he makes sales on behalf of X company to

Y company, which is not engaged in renegotiable business, and also to the Department of the Army. The commissions on the sales to the Department of the Army are renegotiable since they are received for procuring a renegotiable prime contract. The commissions on the sales to Y company are not renegoti able even though all of the commissions are received pursuant to the single commission contract. It is immaterial in this instance whether the commission is a fixed amount or is measured by the amount of the renegotiable sales.

(b) All receipts or accruals which are contingent upon the procurement of renegotiable prime contracts or subcontracts or which are determined with reference to the amount thereof, are subject to the act without regard to whether they are paid or payable for the procurement of such prime contracts or subcontracts or for the servicing thereof.

ness.

Example. A sales organization is entitled by its contract with X Corporation to be paid 5% of all sales of X Corporation within a certain territory. Most sales during the year are repeat orders placed directly with X Corporation by regular customers who make their purchases in connection with renegotiable busiThe main function of the sales organization is to service the contracts, expedite shipments, and render engineering or other technical assistance to X Corporation in the improvements, use or maintenance of its products. All commissions received or accrued by the sales organization from X Corporation on renegotiable business are subject to the act.

(c) If the amount of the receipts or accruals under a subcontract described in section 103 (g) (3) of the act is not contingent upon the procurement of a renegotiable prime contract or subcontract, or measured by the amount thereof, but is received or accrued in whole or in part for soliciting, attempting to procure or procuring such a contract, that part of such receipts or accruals is subject to the act which the Board determines to be reasonably allocable to renegotiable sales.

Example. Pursuant to a fixed monthly retainer, a manufacturer's representative represents X Corporation, sells its products, assists in expediting shipment thereof, and performs engineering services in connection with such sales and the use of such products. Normally, segregation will be accomplished by applying to the receipts or accruals from the retainer contract the same ratio which the renegotiable sales of X Corporation bear to total sales. If it should appear, however, that the application of such ratio would not correctly reflect the part of such receipts or accruals which is properly referable to renegotiable business, segreation will be accomplished on such basis as will correctly reflect such part.

(10-17-56)

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