other second-hand dealers for stock and resale by them were not included. It was recognized that not all the included sales were fully renegotiable, but they were included at 100 per cent in order to offset other excluded sales which might be partially renegotiable.

Petitioner paid its three officers, George, Fred, and Robert Bierbaum, $204,900 compensation during the year involved. They managed the business, worked long hours, traveled considerably, and did all the buying and selling. The respondent allowed $125,000 as reasonable compensation for the officers in determining the petitioner's excessive profits. The revenue agent who audited petitioner's tax returns for that year likewise allowed but $125,000 as reasonable compensation for the officers. Upon the determination of tax deficiencies, the petitioner filed a proceeding in this Court involving, among other issues, the question of compensation. Subsequently the case was settled and a decision was entered pursuant to stipulation of the parties as to the amounts of the deficiencies due. Among the questions disposed of in this settlement was the adequacy of the salary allowance. Petitioner's business during the year in issue was of the same general character as its business during the prewar period. It carried its own inventory risks, and its operations involved the use of large sums of money. Petitioner's sales were made at or less than OPA ceiling prices. Petitioner performed reconditioning operations on the machines which it bought and resold. The second-hand machine tool business is subject to cycles.. Skill and experience in buying are required to succeed in the business.

Petitioner's sales during the prewar period were small in comparison with its 1942 sales, and it suffered losses in two of those years.

In the fiscal year ended September 30, 1942, the aliquot portion of petitioner's over-all net profits attributable to its renegotiable sales in the amount of $406,691.65, after adjusting deductions to reflect a salary allowance of $125,000 to its officers, was approximately $173,000. Petitioner's profits were excessive in the amount of $143,000 for the fiscal year ended September 30, 1942.

OPINION.

ARUNDELL, Judge: Except for the includibility of sales to the Defense Plant Corporation, there was apparent agreement between the petitioner and the respondent, in the administrative stage of this proceeding, as to the gross amount of petitioner's renegotiable sales. Petitioner now concedes that, under National Electric Welding Machines Co., 10 T. C. 49, Defense Plant sales are renegotiable, and it is therefore willing to stand by the figure of $406,691.65 as representing its renegotiable sales. The respondent admits in his answer that he used that figure in making his determination, but he denies the cor

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rectness of the figure and now contends that petitioner's total renegotiable sales greatly exceeded that amount.

The manner in which the amount of $406,691.65 was determined— a sort of compromise between the respondent's agent and the petitioner's officers-is set out in our findings and need not be repeated here. At that time both sides recognized that not all the included sales would be renegotiable to the extent of 100 per cent because the machines were probably not used by the vendees entirely on war production work; that the excess amount would offset some omitted sales which might, to a small extent, be renegotiable; and that, collectively, $406,691.65 fairly represented the gross amount of petitioner's renegotiable sales.

Accepting the amount of the renegotiable sales to be $406,691.65, as originally determined by the respondent and now agreed to by the petitioner, we proceed with the consideration of the reasons advanced by petitioner in support of its contention that its excessive profits were a sum very much less than $143,000.

Petitioner contends that the respondent's salary allowance is too low, and that this Court should allow either the full amount of $204,900 actually paid the officers or, at least, the amount of $188,400, which one of petitioner's officers testified to as the amount finally allowed by the Bureau of Internal Revenue in settlement of the tax deficiencies. We find no warrant in the present record for disturbing the respondent's allowance of $125,000 compensation, which, under the circumstances appears to us to be reasonable. While the Renegotiation Act, section 403 (c) (3), provides for the allowance of deductions of the character allowed under the Internal Revenue Code, it does not, as the petitioner recognizes, make the determination of the Bureau of Internal Revenue binding as to the amount of any particular deduction. Furthermore, as indicated in our findings, the tax case involved other issues and was settled by stipulation of the parties.

We have taken note of the fact that petitioner's business is speculative and subject to cycles, that risk is involved in its buying and selling operations, that considerable capital is employed in the business, and that petitioner carries its own inventory risk. We think, however, that the determination of the respondent allows the petitioner an adequate return to compensate it for these factors. While the profits remaining to the petitioner after deducting the excessive portion might appear somewhat small, percentagewise, by prewar standards, in view of the tremendous volume induced undoubtedly by the war preparedness program, we think the net return on sales, after renegotiation, is fair. Taking the record as a whole, we conclude that petitioner has failed to prove that its excessive profits were less in amount than those determined by the respondent.

The respondent contends that the petitioner's renegotiable sales were greater than the amount determined by him, viz., $406,691.65, and he therefore asks that the excessive profits be determined in the amount of $250,000. It is incumbent upon respondent to prove the facts in support of his claim for an increased amount of excessive profits, a burden which he has failed to sustain. Nathan Cohen, 7 T. C. 1002.

Petitioner finally contends for an adjustment on account of accelerated amortization under section 124 (d) of the Internal Revenue Code. One of its officers testified that in connection with the compromise of the tax deficiencies there was an additional allowance of $10,517.49 attributable to accelerated amortization. Assuming without deciding that this is a matter to be considered by this Court, the record fails to contain a certificate from the Bureau of Internal Revenue of any official action in that regard, such as is required to obtain a renegotiation rebate. The petitioner should follow the procedure provided by section 403 (a) (4) (D) of the Renegotiation Act, paragraphs 383.2 and 383.3 of the Renegotiation Regulations, and Mim. 6023, 1946-2 C. B. 187, by filing claim for a net renegotiation rebate. Reviewed by the Court.

An order will issue in accordance herewith.

MAGUIRE INDUSTRIES, INCORPORATED, PETITIONER, V. SECRETARY OF WAR, RESPONDENT.

Docket No. 225-R. Promulgated January 27, 1949.

Order of Secretary of War purporting to determine petitioner's excessive war profits, not with respect to any contract or fiscal period, but pursuant to, and additional to those incorporated in, a prior bilateral agreement, held insufficient to confer jurisdiction on the Tax Court.

Eugene Daniel Powers, Esq., Henry Epstein, Esq., and James Grossman, Esq., for the petitioner.

Julian R. Wilheim, Esq., and J. F. Wolf, Esq., for the respondent.

Petitioner, by this proceeding, seeks a redetermination of an order of the Secretary of War that $750,000 of the profits realized by petitioner during the period from May 1, 1942, to October 31, 1942, on its war contracts was excessive.

The issues presented are as to the scope of our jurisdiction and as to the extent of petitioner's excessive profits, respondent having issued the order above referred to as supplemental to a bilateral agreement

between the parties specifying excessive profits for the fiscal year ended October 31, 1942, of $6,000,000.

A substantial part of the record was covered by stipulations. These were supplemented by evidence adduced at the hearing.

FINDINGS OF FACT.

All of the stipulated facts are hereby found accordingly. Petitioner is a New York corporation, organized in 1916 under the name of Auto-Ordnance Corporation. It legally changed its corporate name in 1944 to Maguire Industries, Inc. Petitioner's principal commercial activity has been the development and sale of the Thompson .45 caliber submachine guns, familiarly known as the "Tommy Gun." The gun is an air-cooled, recoil operated, magazine fed weapon, firing either semiautomatically (that is, a single shot at each pull of the trigger), or full-automatically (that is, delivering continuous fire at the rate of 600-700 shots per minute when the trigger is pulled).

At all times material to this proceeding petitioner has maintained its books and records on an accrual basis. During 1936, 1937, and 1938 petitioner was on a calendar year basis. Since November 1, 1939, petitioner has operated on the basis of a fiscal year ending October 31. As of October 31, 1939, petitioner had a cumulative deficit of $3,084,384. For the periods indicated, petitioner had total sales and total profits (or losses) as follows:

Early in May 1942 petitioner and respondent entered into negotiations for the purpose of securing price reductions on petitioner's then existing contracts with the Government, and also for the purpose of adjusting profits realized by petitioner from Government contracts. Under date of August 7, 1942, petitioner and respondent entered into an agreement as a result of the renegotiations between them. It was agreed, inter alia:

that Six Million ($6,000,000) Dollars, and the amount payable under Paragraph 4 hereof, of the aggregate contract prices provided for in the contracts between the undersigned [petitioner] and the War Department enumerated or generally described in Schedule A attached hereto, representing profits realized, or likely to be realized, by the undersigned during the fiscal year ending October 31, 1942, shall be returned to the United States of America.

It was agreed that payment would be made by the payment by petitioner of $3,000,000 in cash and by withholding in each of the months of September, October, and November, 1942, the sum of $1,000,000 against invoices rendered by petitioner to the United States of America in each of those months, making an aggregate withholding of $3,000,000. The foregoing provisions relating to payment were contained in paragraphs 1, 2, and 3. Paragraph 4 of the provisions relating to payment provided as follows:

An aggregate sum estimated to be approximately $875,000, will be paid in cash upon the delivery to the undersigned of a counterpart of this agreement duly executed by or for the Under Secretary of War, which sum has been accumulated by the undersigned as a result of payment to the undersigned on account of invoices rendered to the United States of America by the undersigned under contract No. 478-DA-210-1456 on and after June 1, 1942, at unit prices in excess of the unit prices contained in a proposal made by the undersigned to the United States of America contained in a letter dated May 15, 1942, copy of which is attached hereto.

The agreement continued:

On or before April 1, 1943, the undersigned will furnish to the Under Secretary of War, signed on behalf of the undersigned by its treasurer and in form satisfactory to the Under Secretary of War, (1) a written statement showing the actual results of operations of the undersigned from May 1, 1942, to October 31, 1942, with necessary supporting data, and (2) a balance sheet, profit and loss statement and analysis of surplus for the fiscal year ending October 31, 1942, certified by independent Public Accountants who may be those regularly employed by the undersigned.

The execution of this agreement by or on behalf of the Under Secretary of War shall be deemed a final determination of the profits realized, or likely to be realized, by the undersigned during said fiscal year from said contracts, subject to the right of the Under Secretary of War or his duly authorized representative.

(a) To reopen the renegotiation in his discretion, but not later than 60 days after the undersigned shall have filed with the Under Secretary of War, the statement and financial papers mentioned in the preceding paragraph hereof, if the result of actual operations from May 1, 1942, to October 31, 1942, were substantially at variance with the estimates for said period upon which said finding is based (a copy of which are hereto attached and initialed for identification) but such negotiation shall relate only to such variance, if any, and

(b) To reopen the renegotiation in his discretion at any time hereafter if in his opinion the undersigned in the course thereof has furnished any false information.

The undersigned [petitioner] has submitted to the Board certain information respecting profits earned by the undersigned since June, 1939, and it is agreed that the return of profits earned in the fiscal year 1942, is of an amount sufficient so that the earnings of the undersigned from June, 1939, to the end of the fiscal year 1942, averaged over the entire period are deemed to be finally determined, subject to the provisions hereof and taking into consideration the refund of the monies herein provided for, representing profits realized, or likely to be realized, in the fiscal year 1942; the purpose of this agreement and the settlement herein made being specifically to reduce income realized, or likely