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VOLUME 2

VW.

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1934
n ited
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NUMBER 6

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W ashington Saturday January 9, 1937
The contract or subcontracts referred ttT herein are limited to those where the award exceeds $10,000.

TREASURY DEPARTMENT.
Bureau of Internal Revenue.
IT. D. 4723
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ontracts
REGULATIONS UNDER SECTION 3 OF THE ACT OF MARCH 2 7 , 1 9 3 4 , AS ORIGINALLY ENACTED AND AS AMENDED---- T. D. 4 4 3 4 SUPER
SEDED

To Officers and Employees of the Treasury Department, the Navy Department, and Others Concerned:
P a r a g r a p h A.Section 3 of the Act entitled An Act to establish the composition of the United States Navy with re spect to the categories of vessels limited by the treaties signed at Washington, February 6, 1922, and at London, April 22, 1930, at the limits prescribed by those treaties; to authorize the construction of certain naval vessels; and for other pur poses , approved March 27, 1934, 48 Stat. L. 505 U. S. C., title 34, sec. 496, provides:
Sec. 3. The Secretary of the Navy is hereby directed to submit annually to the Bureau of the Budget estimates for the con struction of the foregoing vessels and aircraft; and there is hereby authorized to be appropriated such sums as may be nec essary to carry into effect the provisions of this Act: P rovided, That no contract shall be made by the Secretary of the Navy for the construction and/or manufacture of any complete naval vessel or aircraft, or any portion thereof, herein, heretofore, or hereafter authorized unless the contractor agrees a TO make a report, as hereinater described, under oath, to the Secretary of the Navy upon the completion of the contract.
b To pay into the Treasury profit, as hereinafter provided cEian be determined by the Treasury Department, in excess of 10 per centum of the total contract price, such amount to become the property of the United States: Provided, That if such amount is not voluntarily paid the Secretary of the Treasury may collect the same under the usual methods employed under the internal revenue laws to collect Federal income taxes.
c To Trm.irw no subdivisions of any contract or subcontract for the gftmA article or articles for the purpose of evading the provisions of this Act, but any subdivision of any contract or sub contract involving an amount in excess of $10,000 shall be subject to the conditions herein prescribed.
d That the manufacturing spaces and books of its own plant, affiliates, and subdivisions shall at all times be subject to inspection and audit by any person designated by the Secretary of the Navy, the Secretary of the Treasury, and/or by a duly authorized committee of Congress.
e To make no subcontract unless the subcontractor agrees to the foregoing conditions.
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The report shall be in form prescribed by the Secretary of the Navy and shall state the. total contract price, the cost of performing the contract, the net income, and the per centum such net income bears to the contract price. A copy of such report shall be transmitted to the Secretary of the Treasury for consideration in connection with the Federal income tax returns of the contractor for the taxable year or years concerned.
The method of ascertaining the amount of excess profit to be paid into the Treasury shall be determined by the Secretary of the Treasury in agreement with the Secretary of the Navy and made available to the public. The method initially fixed upon shall be so determined on or before June 30, 1934: Provided, That in any case where an excess profit may be found to be owing to the United States in consequence hereof, the Secretary of the Treasury shall allow credit for any Federal income taxes paid or remaining to be paid upon the amount of such excess profit.

P ar. B. Section 3 b of the Act referred to above in para graph A was amended by the Act of June 25, 1936 Public, No. 804, 74th C ong.1, to read as follows:
Sec. 3. b To pay into the Treasury profit, as hereinafter pro vided shall be determined by the Treasury Department, in excess of 10 per centum of the total contract prices, of such contracts within the scope of this section as are completed by the particular contracting party within the income taxable year, such amount to become the property of the United States, but the surety under such contracts shall not be liable for the payment of such excess profit: Provided, That if there is a net loss on all such contracts or subcontracts completed by tbe particular contractor or subcontractor within any income taxable year, such net loss shall be allowed as a credit in determining the excess profit, if any, for the next succeeding income taxable year: Provided further, That if such amount is not voluntarily paid the Secretary of the Treas ury bail collect the same under the usual methods employed under the internal-revenue laws to collect Federal income taxes:
Provided further, That all provisions of law including penalties applicable with respect to the taxes imposed by Title I of the Revenue Act of 1934, and not inconsistent with this section, shall be applicable with respect to the assessment, collection, or pay ment of excess profits to the Treasury as provided by this section, unri to refunds by the Treasury of overpayments of excess profits into the Treasury: And provided further, That this section shall not apply to contracts or subcontracts for scientific equipment used for communication, target detection, navigation, and fire con trol as may be so designated by the Secretary of the Navy, and the Secretary of the Navy shall report annually to the Congress the riampcj Qf such contractors and subcontractors affected by this provision, together with the applicable contracts and the amounts thereof: And provided further, That the income-taxable years shall be such taxable years beginning after December 31, 1935, except that the above provisos relating to the assessment, collection, pay ment, or refunding of excess profit to or by the Treasury shall be retroactive to March 27, 1934.

Pursuant to the authority prescribed by section 3 of the Act of March 27, 1934, 48 Stat. L. 505 U. S. C. title 34, sec. 496, as amended, the following regulations are hereby prescribed with respect to section 3 o f such Act as originally enacted and as amended:
A rticle 1. Definitions.As used in these regulations the term a Act means the Act of March 27, 1934, 48 Stat. L.
505 U. S. C. title 34, sec. 496 as originally enacted and as amended by the Act of June 25, 1936 Public, No. 804, 74th C ong..
b Person includes an individual, a corporation, a part nership, a trust or estate, a joint-stock company, an associa tion, or a syndicate, group, pool, joint venture or other unincorporated organization or group, through or by means of which any business, financial operation or venture is carried on.
c Contract means an agreement made by authority of the Secretary of the Navy for the construction or manufac ture of any complete naval vessel or aircraft, or any portion thereof.
149 Stat. 1926.

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