MEMORANDUM-ENTERTAINMENT AT THE CARTER HOTEL Jack & Heintz, Inc., maintains an account at the Carter Hotel, Cleveland, for purposes of entertaining employees and other persons. From a set of invoices and voucher sheets showing payment (possibly not complete), for the period August 6, 1941, to January 5, 1942, it appears that payments made were $14,886.29, for dinners, flowers, cigarettes, liquor, and various items. The payment of November 28, 1941, includes $40.93 for four lieutenants and one major. Another set of invoices for which no vouchers showing payment are present, totals $3,205.89. Unallowable entertainment expense for the fiscal year ending October 31, 1941, totaled $24,427.36. (From table, p. 4 of Navy auditor's report.) EXHIBIT No. 52 OCTOBER 23, 1941. Voucher 5400. Expense for football tickets, $1,650. VERBAL ORDERS DON'T GO WRITE IT! To D. A. Lake, October 23, 1941. Check to cash, $1,650, expense for football tickets. Subject: Federal income and excess profits taxes payable by Jack & Heintz, Inc., for fiscal year ending October 31, 1941, by application of Treasury Decision 5000. The Federal income and excess profits taxes paid by Jack & Heintz, Inc., for fiscal year ending October 31, 1941, were determined as follows: Normal corporation income and defense taxes: Income reported by company. $376, 537. 38 83, 214. 76 7, 154. 21 90, 368. 97 376, 537. 38 90, 368. 97 Based upon Treasury Decision 5000, the following items on the statement of profit and loss and earned surplus of Jack & Heintz, Inc., are subject to reclassification and disallowances: Taking the net profit before taxes as adjusted by application of Treasury Decision 5000, the Federal income and excess profits that would have been payable had such decision been applicable are as follows: Normal corporation income and defense taxes: Income as adjusted... Normal tax (rate 22.1 percent) Defense tax (rate 1.9 percent). $1, 631, 163. 21 360, 487. 07 30, 992. 10 391, 479. 17 1,631, 163. 21 391, 479. 17 1, 239, 684. 04 49, 039. 40 1, 190, 644. 64 5, 000. 00 15, 000. 00 35,000.00 100, 000. 00 45 percent rate on $500,000 225, 000. 00 50 percent rate on $270,644.64. 135, 322. 32 Total excess profits tax due___ 515, 322. 32 Total taxes due: Normal and defense taxes. Total_ $391, 479. 17 515, 322. 32 906, 801. 49 As shown by the above computations, Jack & Heintz, Inc., paid total income, defense, and excess profits taxes of $172,220.57. Application of Treasury Decision 5000 would have made total income, defense and excess profits taxes due of $906,801.49. By not having Treasury Decision 5000 applicable, the Government lost $734,580.92 in taxes from Jack & Heintz, Inc. EXHIBIT No. 55 MEMORANDUM Subject: Tax liability of Jack & Heintz, Inc., to profit limitation legislation. The application of a 7 percent profit limitation on the cost of Government contracts would result in the following tax liability for Jack & Heintz, Inc., under the return as made by them: Normal income and defense taxes: Profit actually reported by company. 7 percent allowable profit-- Difference retained by company-. Tax rates on 7 percent profit return: Total Excess-profits tax: Normal tax net income.. Less income and defense taxes__ Excess profits net income... Less: Specific exemption. Excess profits credit Adjusted excess profits net income_-_ Tax rates: 25 percent rate on $20,000_ 30 percent rate on $50,000... – 35 percent rate on $50,903.96_ Amount payable--- 120, 903. 96 5, 000. 00 15, 000. 00 17, 816. 39 37, 816. 39 The amount retained by the company under a 7 percent profit limitation after payment of income, defense, and excess-profits taxes would be $132,126.97. This would result in a return of 4.1 percent after taxes on the cost of Government contracts. MEMORANDUM Subject: Tax liability of Jack & Heintz, Inc., to profit limitation legislation. The application of a 7 percent profit limitation on the cost of Government contracts as adjusted by application of Treasury Decision 5000 would result in the following tax liability for Jack & Heintz, Inc.: The amount retained by the company under a 7 percent profit limitation after adjustment by Treasury Decision 5000 and payment of income, defense, and excess-profits taxes would be $115,314.90. This would result in a return of 4.3 percent after taxes on the cost of Government contracts. EXHIBIT No. 56 Statistics on profit of contractor Jack & Heintz, Inc., fiscal year ending Oct. 31, 1941 Total sales___ Cost of sales (adjusted)_ Profit Capital and surplus with which contractor began business_ Plant and equipment furnished by contractor as of Oct. 31, 1941. Profit to stated value of capital stock_ $4, 339, 379. 52 2, 530, 601. 88 1, 631, 163. 21 100, 000. 00 329, 945. 38 37.59 64. 46 1, 631. 16 491. 34 326, 232. 6422 Total Army and Navy contracts awarded to Mar. 1, 1942-$58, 191, 899. 35 |