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plus interest, more than the overpayment now allowed for that year, unless the Government was successful in obtaining a set-off of $16,254.91, the overpayment allowed for the fiscal year 1919 under section 284 (c), Revenue Act of 1926, which was apparently barred from allowance at the time of the settlement, but was approved by this office in order to carry out the settlement recommended by the special advisory committee. The approval of the final closing agreement for the fiscal year 1919 is necessary in order to carry out the settlement agreement reached with the taxpayers whereby they were assured that there would be no attempt on the part of the Government to recover the above-mentioned overpayment of $16,254.91 for the fiscal year 1919.

On the basis of the foregoing adjustments, the tax liabilities as shown in the closing agreements are as follows:

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1 The total overassessments allowed the taxpayers amounted to $2,167,463.33, however deficiencies amounting to $6,710.66 were assessed against 4 subsidiaries leaving a net overassessment of $2,160,752.67, as above indicated.

The total tax liability of $2,716,794.91 for the fiscal year 1918 represents a tax liability of $2,694,677.62 for the Cuban-American Sugar Co., the parent company, and a total tax liability of $22,117.29 for its subsidiary companies. The liability of $2,694,677.62 for the parent company is $55,602.75 greater than the tax liability shown for that company in the statement of recomputation attached to the recommendation of the former special advisory Committee. The reason for difference of $55,602.75 has been stated previously in this memorandum.

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ROBERT H. JACKSON, Assistant General Counsel for the Bureau of Internal Revenue.

BUCKLEY & BUCKLEY,

ATTORNEYS AT Law,

New York, July 22, 1941. Hon. EUGENE KEOGH,

House Office Building, Washington, D. C. MY DEAR CONGRESSMAN: In connection with the claim of the Cuban American Sugar Co., I would like to call your attention to some very important data which appears in the memorandum of July 26, 1934, which was submitted by Government counsel at the hearing before you on the above claim.

On page 5 of the memo there appears this statement: “The former Special Advisory Committee in a forty-one page memorandum, approved by the Commissioner on September 27, 1932, recommended as an acceptable basis of settlement, that there be added to invested capital as determined in the Bureau sixty-day letters, the lump sum of $11,000,000.00.”

On page 19 of the memo there appears the following:

"The following summary indicates certain of the additions to invested capital which were considered in arriving at the lump sum addition of $11,000,000.00 which was allowed in the settlement of the case: Time and manner of organization..

$3, 929, 340. 28 San Manuel Sugar Co. investment.

854, 549. 67 Improvements, Juan Claro Island.

350, 000.00 Clearing lands

4, 532, 700.00 Canals, cuts, dams.

354, 000.00 Construction costs..

750, 000. 00" These two statements furnish an absolute refutation of the Government's conkention made before the Court of Claims, and before yourself, that the $11,000,000 added to invested capital of the company was purely an arbitrary figure and added for settlement basis.

The statements above show that the $11,000,000 was not only not arbitrary nor a lump sum but had been arrived at as a proper addition even from the Government's viewpoint by the special advisory committee, after an investigation, and, also, that it was made up of several items set forth on page 19 in detail. I am submitting the above for your consideration in regard to this claim. Sincerely yours,

L. M. BLACK O

CONGRESS

DANIEL D. O'CONNELL AND ALMON B. STEWART

FEBRUARY 9, 1945.- Committed to the Committee of the Whole House and

ordered to be printed

Mr. JENNINGS, from the Committee on Claims, submitted the following

REPORT

[To accompany H. R. 1303]

The Committee on Claims, to whom was referred the bill (H. R. 1303) for the relief of Daniel D. O'Connell and Almon B. Stewart, having considered the same, report favorably thereon without amendment and recommend that the bill do pass.

A similar bill was favorably reported by this committee in the Seventy-eighth Congress and passed the House, but no action was taken in the Senate before final adjournment.

The facts will be found fully set forth in House Report No. 1236, Seventy-eighth Congress, which is appended hereto and made a part of this report.

(H. Rept. No. 1236, 78th Cong., 2d sess.) The purpose of the proposed legislation is to pay to Daniel D. O'Connell and Almon B. Stewart, both of Bangor, Maine, the sums of $544.16 and $1,732.22, respectively, in full satisfaction of all claims against the United States for damages sustained by them by failure of George E. Glunt, of Altoona, Pa., to pay them for labor and materials furnished as subcontractors under said George E. Glunt, who held a contract with the Civil Aeronautics Administration for the construction of an airways communication station building at Bangor, Maine.

STATEMENT OF FACTS

The first regional office of the Civil Aeronautics Administration located at LaGuardia Field, Long Island, N. Y., contracted with George E. Glunt, successful bidder, under Invitation No. 1-41-357 for the erection of a 16- by 24-foot prefabricated steel-frame watch-house building furnished by the Government at Bangor, Maine. The estimated cost of the work was $1,688.

After the Government acceptance of the lease, Mr. Glunt, the contractor, was issued the usual notice to proceed with the work commencing September 22, 1941, and was required to complete the job under the terms of the contract within 60 days, or by November 21, 1941. Mr. Glunt sublet the contract to two subcontractors, Daniel D. O'Connell and Almon B. Stewart. Mr. Stewart's bill to Mr. Glunt for the erection amounts to $1,732.22, while Mr. O'Connell's bill for labor and material for the foundation amounts to $544.60.

Mr. Glunt failed to pay his subcontractors. It appears that he did not even return to Bangor after making the contract, and that he did nothing toward performance of the contract. The construction was supervised by an engineer from the office of the Civilian Aeronautics Administration. No bond appears to have been required of the contractor.

Prior to payment being made to Mr. Glunt by the Government, the subcontractors have notified the Civil Aeronautics Administration in writing that Mr. Glunt was obligated to them. This is admitted in he report submitted by the Department of Commerce. Despite such notice the Civilian Aeronautics Administration proceeded to pay Mr. Glunt, and notified Messrs. O'Connell and Stewart that they could not recognize any claim by them, since the Government had contracted with Mr. Glunt.

The Department of Commerce denies the Government's liability on the ground that there was no privity of contract between the Government and the subcontractors, and hence the Government is not responsible for the acts of its contractor in failing to meet his obligation to his subcontractors, any dispute as to settlement being one for adjustment between the contractor and his subcontractors.

Your committee, however, feel that because of the peculiar circumstances of this case the general rule should not be applied, and that the Government is at least morally and equitably obligated to the subcontractors. Mr. Glunt, the contractor, was "a soldier of fortune and a bird of flight," a fact that came to the early attention of the Government when it developed that he did not even return to Bangor, where the construction took place, after entering into the contract, and apparently had been there merely for the formalties of executing the contract. From the beginning of the work until completion thereof, it was supervised by an engineer from the office of the Civilian Aeronautics Administration who was notified by the subcontractors, and who well knew, that Mr. Glunt was performing no services whatever and that all of the work was being done and all of the materials were being furnished by Messrs. O'Connell and Stewart. Furthermore, long before payment by the Government was made to Mr. Glunt, the Government was notified in writing that Messrs. O'Connell and Stewart had performed the contract and were entitled to the money, and that Mr. Glunt had done nothing more than execute the contract with the Government, subcontract with Messrs. O'Connell and Stewart, and that he then left the scene and never returned thereto; yet the Government did not withhold or even question payment to Mr. Glunt, despite its being put on notice that he was in the very act of defrauding his subcontractors. It is further submitted that the Government did not require a bond of Mr. Glunt, as is usual in such cases. It is believed that if, under the circumstances, Mr. Glunt's contract had been with a person or persons other than the Government, and payment to Mr. Glunt had been made, such person or persons could be required to pay the subcontractors despite the fact that they had already paid Mr. Glunt, and that a lien would also attach to the building which had been onstructed.

Your committee feel that the predicament results from fault or negligence on the part of the Government in proceeding to pay Mr. Glunt, despite the exceptional circumstances, and that the subcontractors are entitled 'to the reliefs ought. In this connection, your committee further feel that the Government should take such steps against Mr. Glunt as to bring him to account for his fraudulent and deceitful acts, and is so advising the Attorney General.

Your committee further find that the subcontractors have little, if any, possibility of obtaining relief other than that which Congress may afford. Immediately after entering into the contract with the Government and the subcontract with the claimants, Mr. Glunt left the jurisdiction for parts unknown. Since it appears that he is irresponsible and a fly-by-night, it is doubted if any judgment which the claimants might be able to obtain against him would be of any value.

The claimants filed suit in the Superior Court at Penobscot, Maine, to enforce a lien against the building constructed by their materials and labor, but the United States filed a “suggestion of interest" in the litigation praying that the bill be dismissed, insofar as it sought to assert, impress, or foreclose a lien on the land and the building or to disturb in any way the possession or rights of the Government, Government property being not subject to lien. This motion, or "suggestion of interest," was sustained.

It is apparent that unless Congress grants the relief sought by the proposed legislation, the claimants (subcontractors) will lose the value of their materials and services.

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