Edward P. Haas, who was the principal organizer and dominant figure in Haas Mold Company #1, was at the time of its organization highly skilled and experienced in the foundry business, in which he had been engaged for many years, both as an officer and director of Metal Parts Corporation and various other companies. At some time in November or December of 1943, he was approached by representatives of the Walker Manufacturing Company, which was then engaged in war work under prime contracts with the United States Navy, relative to the manufacture of certain rings and covers for powder barrels. Pursuant to discussions between Edward P. Haas and the Walker Manufacturing Company, it was decided that the items could best and most economically be manufactured by the use of the permanent mold method of casting, which would eliminate the need for much of the machining necessitated by either the wet or dry sand mold methods then used in the foundry industry for making aluminum castings. The permanent mold method of casting was at that time in experimental stages in the industry and neither Metal Parts Corporation nor any other company with which Edward P. Haas was connected had any facilities for the experimental and developmental work necessary to bring this method to perfection. Edward P. Haas began experiments to perfect the permanent mold method in the middle of January 1944. As a result of these experiments, he succeeded, in the latter part of April, in designing permanent molds to be used in the manufacture of the rings and covers mentioned above. He had the mold manufactured and in April 1944 acquired the premises necessary for the manufacturing of the rings and covers. Haas Mold Company #1 was formed and actually commenced operation on May 1, 1944.

The

As a result of Edward P. Haas' efforts in perfecting the permanent mold method of casting the rings and covers required by the Walker Manufacturing Company, it was possible to eliminate the use of skilled molders whose services were in great demand during the war. use of unskilled labor permitted the manufacture of the required items at reduced costs. No price reductions were made by either Haas Mold Company #1 or #2 to the Government with respect to the contracts on which they were engaged during the periods in question.

On January 28, 1945, Edward P. Haas and Carolyn Haas each disposed of all but 10 per cent of his respective interest in the partnership to certain individuals in amounts as follows:

By the terms of the various sales, a one-tenth interest in the Haas Mold Company #1 sold for a total price of $15,000. A cash payment of $3,000 was required, together with the execution of notes for $12,000, payable $2,000 in 3 months, $2,000 in 6 months, $2,000 in 9 months, and $6,000 in 12 months. The seller, Edward P. or Carolyn Haas as the case might be, was to have a lien upon the profits so long as any balance of the purchase price remained unpaid.

On February 1, 1945, the partners entered into a new agreement, which provided in part as follows:

WHEREAS, it is the desire of the parties hereto to dissolve said partnership agreement of May 1st, 1944 and enter into a new partnership agreement wherein all of the parties hereto will become partners;

IT IS HEREBY AGREED:

FIRST: That the partnership agreement dated the 1st day of May, A. D. 1944 wherein Edward P. Haas, Carolyn Haas, and Alvin N. Haas were named as partners be and the same is hereby dissolved.

SECOND: That the parties hereto hereby make a new partnership agreement to take the place of said partnership agreement herein dissolved, subject to the following terms and conditions:

(a) The partnership shall continue the business of the dissolved partnership hereinbefore referred to and shall continue the business of manufacturing, jobbing, selling, retailing and dealing in and with permanent mold castings, machine work, tool work and castings, and generally to conduct a foundry and do such other business as may be germane thereto.

(b) The partnership shall commence on the 1st day of February, A. D. 1945 and shall continue for five (5) years.

(c) The partnership shall be conducted and carried on under the partnership name, style and firm of HAAS MOLD COMPANY.

(d) The place of business of the said partnership shall be in the Village of Union Grove, Wisconsin, or in such other place or places as the partners shall hereafter determine.

(e) The capital of said partnership shall consist of the fixed assets of the Haas Mold Company as they appeared on the books of the company on January 31st, 1945 amounting to Twenty-two Thousand Eight Hundred Fifty-two and 44/100 ($22,852.44) Dollars. That each of the parties hereto has contributed and now owns a fractional share of the capital of the partnership, the fractional share of each of the partners having been set forth hereinabove. That a deed to the land and buildings on which the Haas Mold Company is located and a bill

1 The interest of Phillip Mares and Germaine Mares and the interest of Florence H. Mogensen and Elmer Mogensen will be regarded as single units of ownership for the purpose of convenience in discussion.

of sale for all machinery, equipment and other property constituting the fixed assets of the Haas Mold Company as of January 31st, 194t [sic] were executed and delivered by the former partners, Edward P. Haas, Carolyn Haas and Alvin N. Haas to this partnership, free and clear from any indebtedness, claims, liens or encumbrances.

(f) The business and affairs of the partnership shall be managed and controlled by an executive committee composed of three (3) of the partners elected annually at a meeting of all of the partners. That the executive committee shall consist of the manager of the business of the partnership and two (2) other partners. That the following partners have been elected to the executive committee of the partnership at the first meeting of the partners: Edward P. Haas, Alvin N. Haas and Phillip J. Mares. Edward P. Haas was designated chairman of the committee, Phillip J. Mares as a third member of the committee. That said executive committee so elected shall hold their respective positions until January 31st, 1946, or until such time as the partners shall elect

a successor.

The new partnership, hereinafter referred to as Haas Mold Company #2, began business on February 1, 1945, and continued the contracts of its predecessor, Haas Mold Company #1.

During the fiscal year February 1, 1945, to January 31, 1946, profits from Haas Mold Company #2 were distributed to each holder of a one-tenth interest totaling $4,467.15. As of December 1945, each of the holders of a one-tenth interest had paid $4,500 in liquidation of the $12,000 balance owed on the purchase notes, leaving a balance of $7,500 unpaid on the purchase notes.

As the result of negotiations looking toward the sale of Haas Mold Company #2 to the J. R. Watkins Company, Edward P. and Carolyn Haas decided in December 1945 to reduce the amounts due and owing to them from each purchaser of a 10 per cent interest in Haas Mold Company #1 from $15,000 to $10,000. This decision was the result of discussions initiated by the various purchasers and was premised upon the possibility of selling Haas Mold Company, an eventuality which would have precluded any further payment of the profits of that company to the various purchasers.

Before sale negotiations were completed and as a result thereof, Haas Mold Company #2 was incorporated and stock distributed to each of the partners according to his proportionate interest.

Pursuant to continuing negotiations looking toward the sale of the business, Edward P. Haas canceled the $2,500 due and owing to him from each of the purchasers of a 10 per cent interest in consideration of a transfer to him by each of them of stock in the newly formed corporation in an equivalent amount. The stockholders of the newly organized corporation sold their stock to the J. R. Watkins Company. For the stock so sold, each stockholder who had had a 10 per cent interest in the predecessor partnership received $10,000 from the Watkins Company, thereby realizing a profit of $6,967.15 on a net investment of $3,032.85.

Metal Parts Corporation, a Wisconsin corporation, with its principal place of business at Racine, Wisconsin, was in existence during 1944 and 1945, and the owners and holders of all of the outstanding stock during the period from January 1, 1944, to January 31, 1946, were as follows:

The directors and officers of Metal Parts Corporation during the period from January 1, 1944, to January 31, 1946, were as follows:

Haas Foundry Company, formerly Armstrong Foundry Company, a Wisconsin corporation, was acquired by the present owners by purchase of all of the outstanding capital stock of the Armstrong Foundry Company in September 1944, and the owners and holders of said stock from September 1944 to January 31, 1946, were as follows:

The directors and officers of Haas Foundry Company during the

said period from September 1944 to January 31, 1946, were as follows:

Relationships by blood and marriage between the Haas family were as follows: Edward P. Haas and Carolyn Haas were husband and wife; Alvin N. Haas and Norbert Haas were brothers of Edward P. Haas; Marguerite W. Haas was the wife of Norbert Haas.

Germaine Mares, Phillip J. Mares, Ethylan M. Rice, Suelette R. Brady, Elmer Mogensen, Florence H. Mogensen, Rita A. Honecker, Ella Coling, Charles Zinnen, Leo Martin, and Ervin Coling were in no way related to Edward P. Haas and Carolyn Haas by blood or marriage.

Alvin N. Haas, Germaine Mares, Phillip J. Mares, Ethylan M. Rice, Suelette R. Brady, Elmer Mogensen, Florence H. Mogensen, and Ella Coling were not stockholders, directors, or officers of Metal Parts Corporation or Haas Foundry Company during the period from May 1, 1944, to January 31, 1946. Phillip J. Mares and Germaine Mares were husband and wife, Elmer Mogensen and Florence H. Mogensen were husband and wife, and Ervin Coling and Ella Coling were husband and wife.

Charles Zinnen and Leo Martin were not stockholders, directors, or officers of Metal Parts Corporation, or partners of Haas Mold Company #1 and #2 during the period from May 1, 1944, to January 31, 1946.

The business of both Metal Parts Corporation and the Haas Foundry Company was separate and distinct from each other and from the business of both Haas Mold Company #1 and #2. No contracts or subcontracts were jointly performed by Haas Mold Company #1 and #2 and Haas Foundry Company and/or Metal Parts Corporation, and no subcontracts were let between any of them. Plants, tools, and labor force of each of the four companies were separate and distinct from each of the other companies and each was operated as a separate and distinct entity.

Haas Mold Company #1 and Metal Parts Corporation were under common control of Edward P. and Carolyn Haas.

Haas Mold Company #2 was not under common control with either Metal Parts Corporation or Haas Foundry Company.

During the period May 1, 1944, to January 31, 1945, Edward P. Haas did not draw any amount with respect to salary. For the same. period, Alvin N. Haas drew $125 per week for his services as general manager. This amount was in addition to his right to a share of the profits. A reasonable salary allowance for the services of Edward P. Haas and Alvin N. Haas rendered to Haas Mold Company #1 during the period May 1, 1944, to January 31, 1945, is $30,000. Carolyn Haas during that period exercised only the functions of an owner, and not those of an employee.

Haas Mold Company #1 realized excessive profits in the amount of $92,904 for its fiscal year ended January 31, 1945.