The $20,000 deduction for salaries and wages represents the partnership's contribution to a pension plan, hereinafter described. The $1,000 professional fees represent the fee paid to accountants employed by petitioner, as hereinafter stated.

The balance sheets of petitioner as of January 1, 1940, December 31, 1940, and November 30, 1941, as shown in its income tax returns for 1940 and 1941, are as follows:

Petitioner's income and declared value excess profits tax return for the period ended November 30, 1941, shows "Cost of operations" to have been $1,539,831.62.

Petitioner's excess profits tax returns for 1940 and 1941 disclose that it had borrowed from the Union Planters National Bank & Trust Co. on its notes as follows:

Prior to September 1940, learning that the E. I. du Pont de Nemours Co. (hereinafter called du Pont) wanted contractors to do excavating work in connection with a defense plant to be built at Charlestown, Indiana, and being invited to bid thereon, petitioner in its own name, as principal, submitted a bid in writing. The invitation to bid was oral, without detailed specifications or statement of the minimum or maximum amount of excavation work required, it being indicated, however, that the project was to be a large undertaking. The bid made by petitioner did not disclose that it was acting as agent for

other parties. In its bid petitioner stated a unit price for excavating certain kinds of dirt, the rental per operating hour of various machinery to be used in excavating and grading work, and the price of everything it could think of which might be necessary for the work required. Following the bid petitioner received from du Pont a socalled purchase order SLC-331, dated September 7, 1940, which involved around $130,000 or $150,000 and, in general terms, authorized the commencement of excavation on the project hereinafter referred to as the Charlestown Ordnance contract, or job. Work was commenced a few days prior to the receipt of the purchase order. Following the original purchase order, petitioner received a series of 31 so-called alteration orders, 26 of which were dated prior to November 30, 1941, and 5 of which were issued between December 1, 1941, and April 16, 1942. Most of the alteration orders were for additional services or constructing certain items of which a unit price had not been submitted in the original bid. Du Pont would look to petitioner alone for the performance of all work covered by the purchase and alteration orders. The plans for the project were being developed day by day at Wilmington, Delaware, by du Pont, which advised petitioner from day to day what was to be done. There was no obligation upon du Pont to give all the excavation or other work to petitioner. The purchase order provided, in part, as follows: All of the prices and rental rates, as outlined in your proposal. The following general remarks shall be included in and formed a part of this contract:

(a) Speed is of paramount importance of the work.

(b) All earth and rock excavation to be paid for on the basis of original volume. (c) The contractor shall agree to the conditions outlined in the general state

ment of wages to be paid and rebate clauses, which are a part of the contract entered into by the U. S. Government and the duPont Company. (d) The contractor shall be paid for seventy-five per-cent of the work completed as of the last working day of each month, payment to be made within ten days of the date upon which the contractor's estimate of work completed is received and verified by the duPont Company.

Alteration order No. 24, dated November 18, 1941, provided, in part, as follows:

Please add to this order the following: "You are to be reimbursed for additional expenses incurred by wage rate increases, and increases in over-time payment as outlined in our letter of February 27, 1941, and of March 2, 1941. This increase covered operators of power equipment, truck drivers, jackhammer men, laborers and welders. In billing for the wage differential you are to add the actual increased labor cost, the percent for social security taxes, etc., four percent; 2.77, four percent; 1-314-2.909 percent from 2-1-41 for Workmen's compensation and Public Liability Insurance, and five percent to cover additional expenses due to interest, taxes, et cetera. Each of the above percentages are to be applied against the actual increased labor cost. The invoice, covering this increased labor cost, is to be submitted in separate vouchers, and not combined with your regular billing. No other change. Approximate total debt for this alteration, $40,000. Terms meet this alteration."

Alteration order No. 7, dated October 26, 1940, to original purchase order SLC-331 stated, in part, as follows:

Terms of Payment. Invoices for rented equipment are to be paid in full within five days after receipt of invoice by duPont. The remainder of the order based on payment of 85 percent of the value of the work completed each month and payable by the 15th of the following month; fifteen percent of the value of the completed work will be retained until an amount of approximately $25,000 has been reached, after which payment for one percent of the work will be made. The $25,000 retained will be held until fifteen days after the completion of the contract.

. A substantial part of the equipment used on the Charlestown Ordnance job was rented and some was bought especially for the job. Most of the purchased equipment was sold on a satisfactory basis upon the completion of the job.

In addition to purchase order SLC-331, covering excavating and grading work, petitioner also received purchase order SLC-2540, dated October 18, 1940, covering outside electrical work on the Charlestown Ordnance job. The electrical work was performed by Consolidated Contractors, a partnership consisting of J. G. Estes, Frank B. Liddell, and Charles L. Stehle, who also received compensation from petitioner as its employees.

The purchase orders, together with the alteration orders, were treated as one project and were recorded on one account in the books of petitioner. To November 30, 1941, the total billings were $4,992,351.83, of which $4,691,745 was allocated to SLC-331 and $300,606.59 to SLC-2540. Of those total billings, $4,936,127.01 had been collected in cash and $56,224.82 represented the estimate receivable on November 30, 1941.

Work was substantially completed on SLC-331 and all alteration orders issued prior to that date on November 10, 1941, and work on SLC-2540 was entirely completed prior to November 30, 1941, and Consolidated Contractors were paid $58,050 on November 30, 1941.

Although the bid covering excavating, grading, and outside electrical work on the Charlestown Ordnance job was made by petitioner, other contracting concerns participated in the performance of the work. On October 7, 1940, a letter was addressed to Clark, Kearney & Stark, of St. Louis, Missouri, as follows:

CLARK, KEARNEY & STARK

3607 Pershing Avenue

St. Louis, Missouri

GENTLEMEN:

CHARLESTOWN, IND., October 7, 1940.

This will serve to confirm our verbal agreement on the work to be done under contract for the du Pont Company on the Charlestown Ordnance Works at Charlestown, Indiana, which is substantially as follows:

The Forcum-James Company shall continue to act as Agent for Pioneer Contracting Company, the Forcum-James Construction Company, and Clark, Kearney & Stark, and as a matter of convenience, all negotiations and records for this work shall be handled in the name of the Forcum-James Company.

The general agreement is confirmed that you are to furnish one-third the required capital; the balance to be furnished by other parties. Any profit or loss resulting from the venture is to be divided in proportion. It is also generally agreed that equipment for the operation will be rented, purchased, or supplied by the principals. If equipment is purchased, it will be disposed of at completion of the job. The cost of such equipment will be treated as a direct cost to the job, and any receipt from sale will be entered as income. All rentals will be included in cost of operation. Rentals for equipment supplied by the principals will be agreed upon.

You are to have a competent representative on the job at all times to aid in the prosecution of the work.

Yours truly,

WEM: nws

cc: PIONEER CONTRACTING CO.

FORCUM-JAMES CONSTR. Co.

FORCUM-JAMES COMPANY.

Pioneer and Forcum-James Construction Co. received copies of this letter. Forcum-James Construction Co. had no capital interest in Clark, Kearney & Stark. The latter was supposed to share equally in the profits on the Charlestown Ordnance job with Pioneer Contracting Co. and Forcum-James Construction Co.

On September 7, 1940, petitioner was indebted to Forcum-James Construction Co. in the amount of $57,562.19. From a schedule attached to the partnership's balance sheet as of December 31, 1940, it appears that the balance of the indebtedness from the petitioner to the partnership, as of January 1, 1940, amounted to $19,406.83, and that additional advances were made during that year of $93,324.54. During that year the partnership was repaid $110,472.50, and as of December 31, 1940, the balance due the partnership for advances to petitioner was $11,186.02. For the year 1941 a similar schedule shows that during that year the partnership advanced $368,059.44 to petitioner and that during the same year petitioner repaid $335,284.44 of that amount.

It was the practice of petitioner to make bids on various projects, the work on which was performed partly or entirely by other concerns on a profit-sharing basis. As a rule there were no written agreements evidencing such arrangements. Occasionally such arrangements were evidenced by an informal memorandum or letter.

As the Charlestown job progressed payments were made by petitioner as follows:

In November 1941 Clark, Kearney & Stark, having obtained another defense contract at Clarksville, Tennessee, desired to withdraw its equipment and personnel from the Charlestown Ordnance job and to be relieved from further responsibility in connection with such undertaking. Under date of November 10, 1941, a "Settlement Agreement" was executed, as follows:

Settlement Agreement

This settlement agreement entered into this day by and between the ForcumJames Company of Dyersburg, Tennessee, agent, and hereinafter known as Party of the First Part, and Clark, Kearney & Stark, a partnership doing business as a contracting company and having it's main office in St. Louis, Missouri and hereinafter known as Party of the Second Part.

Witnesseth, that whereas Party of the First Part acting as agent for the said Clark, Kearney & Stark and the Pioneer Contracting Company of Dyersburg, Tennessee and the Forcum-James Construction Company of Dyersburg, Tennessee did negotiate a contract with E. I. duPont de Nemours & Company of Charlestown, Indiana on September 7th, 1940, for certain work to be done in connection with the construction of the plant for the Indiana Powder Company, whereby each of the said above companies were to receive their proportionate part of the profits, or were to assume their proportionate part of the losses.

Witnesseth further that the work now is substantially completed but final accounting cannot be made at present time.

Witnesseth further that a profit is indicated from this joint venture and Party of the Second Part desires to make final settlement in order that they may have immediate use of the monies to which they are entitled. Party of the Second Part also desires to be relieved of any further responsibility in connection with the said project.

Therefore in consideration of being relieved of any further responsibility in connection with this joint venture, and in consideration of having immediate use of their portion of the monies derived from this said contract, the said Clark, Kearney & Stark Party of the Second Part hereby agrees to accept the amount of One Hundred and Fifty Thousand ($150,000.00) Dollars as full and complete and final settlement of all claims whatsoever, and it is further agreed that said Party of the Second Part is hereby relieved from any further responsibility for maintenance and completion.

It is further agreed that Party of the Second Part has a remaining balance of Seventy-five Hundred ($7,500.00) Dollars which was deposited with Party of the First Part as operating capitol in this joint venture, and that said Seventy-five Hundred ($7,500.00) Dollars is to be returned to said Party of the Second Part upon the execution of this settlement agreement, and the receipt of which is hereby acknowledged.