Masonry Magazine October 1971 Page. 17
TAXES
By MIRIAM McD. MILLER
PRESIDENT'S ECONOMIC PLAN
Should Congress pass the income tax features of President Nixon's economic plan then there will be a new 10% investment tax credit and an acceleration of certain tax cuts. The personal exemption would be advanced from $650 to $750 on January 1, 1972. (As the law now stands this personal exemption is scheduled to increase from $650 to $700 on January 1, 1972.) Also, the standard deduction would be jumped from the scheduled 14% and $2000 maximum on January 1, 1972 to 15% with the $2000 maximum on that date.
GOVERNMENT CONTRACT
A company recently asked the IRS if it was "the" employer within the purview of the tax laws with regard to the following employees. The employees in question performed services in the construction of a Federal project by a company under the "cost-plus-a-fixed fee" contract with the U.S. Department of the Navy. The company, a general contractor, had entered into a contract with the Navy Department to construct certain buildings at a naval training station.
The question of who was responsible for the employment taxes covering these employees presented itself because of the extent of the Navy's involvement in the personnel of the company. The contract involved provided that no individual may be assigned by the company to certain specified supervisory positions until a statement of the qualifications and experience of the individual proposed for the job had been submitted to and approved by the contracting officer. The contracting officer also had the authority to require the company to dismiss any employee that he deemed to be incompetent, careless, insubordinate or otherwise objectionable.
In deciding this question, it is not necessary to determine if the employer actually directs or controls the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer.
The IRS ruled that these individuals were employees of the company. "Although the Department has reserved the right to approve the assignment of certain individuals to supervisory positions and the right to require the discharge of an individual for cause, these actions are ultimately the responsibility of the company rather than the Government." Rev. Rul. 71-356.
IRS COSTS
It is certainly food for thought to realize that for the fiscal year 1972 the Congress will probably appropriate some $750 million dollars for the IRS. $780 million will be spent just to collect the taxes! This would be an increase of $68 million over last year's budget.
The House Committee on Appropriations, in its report on this, stated that while it realizes that the IRS has well over 100 million tax returns to process each year there is no limit "to the number of personnel or the amount of money that can be utilized for compliance activities." The Committee did recommend that the IRS investigate the means of improving its compliance methods primarily in the "high yield" tax areas.
SEIZED CONSTRUCTION EQUIPMENT
There may be a lesson to learn from a case that was recently before a Federal district court in California. A general contractor undertook the construction of a housing project. The recent work on the project was subcontracted to a partnership. However, as sometimes happens, the subcontractor became heavily indebted to a building supply company. In order to prevent the supply company from slapping a mechanic's lien on the entire job, the general contractor agreed to pay the debt for the subcontractor.
After making such an arrangement, the general contractor told the subcontractors that he wanted all of the partnership's equipment although he would permit the subcontractors to use the equipment as needed. When the subcontractors failed to deliver the equipment, the general contractor sent his own employees to seize the equipment at a construction site.
In the meantime, the federal government assessed employment and withholding taxes against the partnership in an amount in excess of $30,000. According to federal law this amount became a lien upon all of the delinquent taxpayers' property at the time of the assessment.
Now, who was entitled to the equipment? The general contractor who had seized the equipment in accordance with its verbal agreement with the subcontractors or the federal government? The Court ruled in favor of the government.
The Court decided against the contractor because it said he was not the owner of the equipment at the time of the assessment. He merely was in possession of the subcontractors' property. The Court's reasoning was that "failure to perfect one's interest under local law is practically conclusive on the priority issue." In other words, had the contractor had the title to the vehicles transferred to himself and had he taken immediate possession of the equipment to fully protect his rights then the Court could have found him to be the owner of the property at the time the federal government assessed the tax deficiency. But, the delay (of only about one month) of perfecting the transfer of the property to himself was a cause to losing out in the priority of claims on the equipment to the federal government. Nomellini Construction Co. v. U.S. (D.C. Calif. 1971.)
PENSION PLAN
According to the provisions of a corporation's pension plan, the employees' contributions plus a portion of the employer's contributions were used to provide incidental