Appendix — White v. Commissioner
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Docket Entries la
APPENDIX A.
Relevant Portions of Record on Appeal.
Docket No. 44257.
THE TAX COURT OF THE UNITED STATES
HENRY P. WHITE and NANCY A. WHITE,
AMENDED CAPTION: “HENRY P. WHITE, and ESTATE OF
NANCY A. WHITE, DECEASED, T. LEO SULLIVAN,
ADMINISTRATOR, C. T. A.,”
Petitioners,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
See order of February 3, 1955.
DOCKET ENTRIES.
1952
Sept. 18—Petition received and filed. Taxpayers notified.
Fee paid.
Sept. 19—Copy of petition served on General Counsel.
Sept. 18—Request for Circuit hearing in Cleveland, Ohio,
filed by taxpayers. 10/2/52 Granted.
Nov. 12—Answer filed by General Counsel.
Nov. 18—Copy of answer served on taxpayers, Cleveland,
Ohio.
1953
Sept. 17—Hearing set November 9, 1953, Cleveland, Onio.
Nov. 11—Hearing had before Judge Opper, on merits.
Briefs due January 11, 1954. Replies due Feb-
ruary 10, 1954.
Nov. 23—Transcript of hearing 11/11/53 filed.
1954
Jan. 11—Brief filed by taxpayers. 1/12/54 Copy served.
Jan. 11—Brief filed by General Counsel. 1/12/54 Copy
served.
2a Petition
Feb. 11—Reply brief filed by taxpayers. Copy served.
Oct. 19—Findings of fact and opinion filed, Judge, Opper.
Decision will be entered for the respondent.
Copy served.
Oct. 19—Decision entered, Opper, Judge, Div. 14.
Dec. 1—Entry of appearance of Edgar S. Byers as coun-
sel filed.
Dec. 16—Motion to withdraw as counsel William Patrick
Clyne filed. 12/17/54 Granted.
1955
Jan. 18—Petition for review by U. S. Court of Appeals,
Sixth Circuit, filed by taxpayers.
Jan. 19—Proof of service filed.
Jan. 21—Designation of contents of record with acknowl-
edgment of service thereon filed by petitioners.
Feb. 2—Motion to substitute personal representative for
petitioner Nancy A. White, deceased, filed by
taxpayers.
Feb. 3—Order, amending caption to read, Henry P.
White, and Estate of Nancy A. White, Deceased,
T. Leo Sullivan, Administrator, C. T. A., en-
tered.
PETITION.
(Filed September 18, 1952.)
The above-named petitioners hereby petition for a
redetermination of the deficiency set forth by the Com-
missioner of Internal Revenue in his notice of deficiency
(CLEVELAND IRA:90D) dated June 24, 1952, and as a
basis of their proceeding allege as follows:
1. The petitioners are individuals, husband and wife,
with residence at 2688 Landon Road, Shaker Heights,
Ohio. The returns for the period involved were filed with
the Collector of Internal Revenue for the 18th District of
Ohio.
MILI LITE LA ETI ILE IS GOOLE OLLIE SIE I ieee
Petition 3a
2. The notice of the deficiencies (a copy of which is
attached hereto and marked “Exhibit A”) was mailed to
the petitioners on June 24th, 1952.
3. The deficiencies as determined by the Commis-
sioner are in income taxes for the calendar years 1948
and 1949 in the following amounts:
Year Deficiency
1948 $ 1,088.51
1949 10,014.28
making a total of $11,102.79, all of which is in controversy,
and in addition thereto, the amount of $7,671.05 for the
taxable year of 1948, previously overpaid by the petition-
ers is also in controversy.
4. The determination of tax set forth in said notice
of deficiency is based upon the following errors:
(a) The Commissioner erred in the disallowance of
losses sustained and deducted by the petitioners in the
amount of $18,624.82 in their income tax return for the
calendar year 1948.
(b) The Commissioner erred in failing to order a
refund of income taxes paid by the petitioners as a result
of the overstatement of taxable income in the amount of
$14,414.40 in their 1948 income tax return.
(c) The Commissioner erred in failing to order a re-
fund of taxes paid by the petitioners as a result of the
understatement by the petitioners on their 1948 Declara-
tion of Estimated Tax on their 1948 income tax return in
the amount of $1,092.07.
(d) The Commissioner erred in the disallowance of
losses sustained and deducted by the petitioners in the
amount of $18,521.02 in their income tax return for the
calendar year 1949.
5. The facts upon which the petitioners rely as a
basis of this proceeding are as follows:
(a) That the petitioners’ business is engineering and
as such employ subordinates, and purchase materials and
supplies necessary and essential to its conduct.
a SOM ALLE RGR SDL LRTI OSORNO
da Petition
(b) That all of the deductions claimed and disallowed
for the years 1948 and 1949, were in connection with the
operation of their engineering business.
(c) That the petitioners understated their estimated
tax paid in their 1948 income tax return in the amount of
$1,092.07.
(d) That the losses sustained and deducted in their
income tax return for the year of 1948 in the amount of
$18,624.82, and for the year 1949 in the amount of $18,-
521.02, were ordinary and necessary business losses in-
curred in the operation of their business.
(e) That the petitioners in filing their income tax
return for the year of 1948, overstated their taxable in-
come in the sum of $14,414.40 and paid the tax thereon
as a result of an arithmetical error in the preparation and
filing of the return.
Wuenreror:g, the petitioners pray that this Court may
hear the proceeding and determine that there is no de-
ficiency in income tax due for the years 1948 and 1949;
and that the petitioners are entitled to a refund for the
calendar year 1948 in the amount of $7,671.05; and that
the Court may grant such other and further relief as the
nature of this case warrants.
Wruu1aM Patrick CLyve,
Counsel for the Petitioners.
Henry W. Rosewater,
Certified Public Accountant.
(Verification omitted.)
_ a
-_
Exhibit A to Petition Sa
EXHIBIT “A.”
U. S. TREASURY DEPARTMENT
Office of Internal Revenue Agent in Charge
404 Hanna Building
Cleveland 15, Ohio
Internal Revenue Service
CLEVELAND
IRA: 90D
Jun 24 1952
REGISTERED
Mr. Henry P. White and
Mrs. Nancy A. White, Husband and Wife
2688 Landon Road
Shaker Heights
Cleveland, Ohio
Dear Mr. and Mrs. White:
You are advised that the determination of your in-
come tax liability for the taxable year(s) ended December
31, 1948 and 1949, discloses a deficiency of $11,102.79,
as shown in the statement attached.
In accordance with the provisions of existing internal
revenue laws, notice is hereby given of the deficiency or
deficiencies mentioned.
Within 90 days from the date of the mailing of this
letter you may file a petition with The Tax Court of the
United States, at its principal address, WasHINcToN 4,
D. C., for a redetermination of the deficiency. In counting
the 90 days you may not exclude any day unless the 90th
day is a Saturday, Sunday, or legal holiday in the District
of Columbia, in which event that day is not counted as
the 90th day. Otherwise Saturdays, Sundays, and legal
holidays are to be counted in computing the 90-day period.
Should you not desire to file a petition, you are re-
quested to execute the enclosed form and forward it to
this office for the attention of IRA: 90D. The signing and
filing of this form will expedite the closing of your re-
turn(s) by permitting an early assessment of the de-
~~ Exhibit A to Petition
ficiency or deficiencies, and will prevent the accumulation
of interest, since the interest period terminates 30 days
after receipt of the form, or on the date of assessment, or
on the date of payment, whichever is earlier.
Very truly yours,
Joun B. Dunuap,
Commissioner,
By (Signed) R. C. Cake
Internal Revenue Agent in Charge
Enclosures:
Statement
Form 1276
Agreement Form
MEC: nmh
STATEMENT
CLEVELAND
IRA: 90D
In re: Mr. Henry P. White and
Mrs. Nancy A. White, Husband and Wife
2688 Landon Road
Shaker Heights
Cleveland, Ohio
Tax Liability for the Taxable Year Ended December
31, 1948 and the Taxable Year Ended December 31, 1949
Income Tax
Year Deficiency
1948 $ 1,088.51
1949 10,014.28
Total $11,102.79
In making this determination of your income tax
liability, careful consideration has been given to the re-
port of examination dated May 10, 1951, to your protest
dated September 20, 1951, and to the statements made at
the conference held on October 18, 1951.
a
Exhibit A to Petition Ja
On March 19, 1951 you filed a claim for refund on
Form 843 for the taxable year ended December 31, 1948
in the amount of $7,671.05 based on the contention that
you made an “arithmetical error on page 2 of return” in
the amount of $14,414.40 and you further contend that
the amount of estimated tax as having been paid and
shown on page 1 of the return was understated in the
amount of $1,092.07.
Investigation discloses that both contentions are cor-
rect. However, another adjustment has been made result-
ing in a deficiency of income tax; therefore, your claim for
refund of income tax will be disallowed.
If a petition to The Tax Court of the United States is
filed against the deficiency proposed herein, the issues
set forth in your claim for refund for the taxable year
ended December 31, 1948 should be made a part of the
petition to be considered by The Tax Court in any re-
determination of your tax liability. If a petition is not
filed, the claim for refund will be disallowed and official
notice will be issued by registered mail in accordance with
section 3772 of the Internal Revenue Code.
A copy of the statutory notice of deficiency, together
with a copy of this statement, has been mailed to your
representative, Mr. David H. Shook, Terminal Tower
Building, Cleveland 13, Ohio, in accordance with the au-
thority contained in the power of attorney executed by
you and on file with this office.
ADJUSTMENTS TO NET INCOME
Taxable Year Ended December 31, 1948
Net income as disclosed by return $46,192.72
Unallowable deductions and additional income:
(a) Business loss ; 18,624.82
Total $64,817.54
Nontaxable income and additional deductions:
(b) Arithmetical error 14,414.40
Net income adjusted $50,403.14
me
ba Exhibit A to Petition
EXPLANATION OF ADJUSTMENTS
(a) Under Schedule C of your return for 1948 you
claimed a deduction for expenses of $18,624.82 incurred in
the operation of an alleged business of “Ordnance En-
gineer.” It is held that such expenses were not ordinary
and necessary expenses of carrying on a trade or business
deductible under section 23(a)(1)(A) of the Internal
Revenue Code, and furthermore, said amount is not de-
ductible in accordance with section 24 of the Internal
Revenue Code.
(b) On page 2 of your 1948 income tax return, you
made an arithmetical error of $14,414.40 in reportable
income. Net income is reduced $14,414.40 to correct the
error made.
COMPUTATION OF TAX
Taxable Year Ended December 31, 1948
Alternative tax:
Net income adjusted $50,403.14
Less: Exemption 2,400.00
Net income subject to tentative tax $48,003.14
One-half of net income $24,001.57
Tentative tax on $24,001.57 $ 9,560.93
Less: Partially tax exempt interest 11.25
Balance of tentative tax $ 9,549.68
Tax reduction: $68.00 plus 12% of
$9,149.68 1,165.96
Partial tax on one-half of net income $ 8,383.72
Total normal tax and surtax
(2 x $8,383.72) $16,767.44
—
Exhibit A to Petition 9a
Less: Income tax payments to a
foreign country $ 119.40
Income tax paid at source
on tax free covenant bond
interest 39.62 159.02
Income tax liability $16,608.42
Less: Tax paid on account of dec-
laration of estimated
tax $11,092.07
Tax assess on return 4,427.84 $15,519.91
Deficiency of income tax $ 1,088.51
ADJUSTMENT TO NET INCOME
Taxable Year Ended December 31, 1949
Net income as disclosed by return $60,675.33
Unallowable deductions and addi-
tional income:
(b) Business loss 18,521.02
Net income adjusted $79,196.35
EXPLANATION OF ADJUSTMENTS
(a) Under Schedule C of your return for 1949 you
claimed a deduction for expenses of $18,521.02 incurred in
the operation of an alleged business of “Ordnance En-
gineer.” It is held that such expenses were not ordinary
and necessary expenses of carrying on a trade or business
deductible under section 23(a)(1)(A) of the Internal
Revenue Code, and, furthermore, said amount is not
deductible in accordance with section 24 of the Internal
Revenue Code.
10a Exhibit A to Petition
COMPUTATION OF TAX
Taxable Year Ended December 31, 1949
Alternative tax:
Net income adjusted
Minus: Net capital gain
Ordinary net income
Less: Exemption
Net income subject to tentative tax
One-half of net income
Tentative tax on $32,773.77
Tax reduction:
$68.00 plus 12% of $14,562.96
Partial tax on one-half of net income
Partial tax on total income
(2 x $13,147.40)
Plus 50% of net capital gain
($11,248.81)
Alternative tax
Total normal tax and surtax
Less: Income tax payments to a
foreign country
Income tax paid at source on
tax free covenant bond
interest
$122.13
175.03
Income tax liability
Income tax liability disclosed by
return
Deficiency of income tax
$79,196.35
11,248.81
$67,947.54
2,400.00
$65,547.54
32,773.77
$14,962.96
1,815.56
$13,147.40
$26,294.80
5,624.40
$31,919.20
$31,919.20
297.16
$31,622.04
21,607.76
$10,014.28
ANSWER.
(Filed November 12, 1952.)
Comes Now the Commissioner of Internal Revenue,
by his attorney, Cuartes W. Davis, Chief Counsel, Bureau
of Internal Revenue, and for answer to the petition filed
herein, admits and denies, as follows:
1 and 2. Admits the allegations contained in para-
graphs 1 and 2 of the petition.
3. Admits that the deficiencies as determined by the
Commissioner are in income taxes for the calendar years
1948 and 1949 in the following amounts:
Year Deficiency
1948 $ 1,088.51
1949 10,014.28
making a total of $11,102.79, all of which is in controversy;
denies the remaining allegations contained in paragraph 3
of the petition.
4. (a) to (d), inclusive. Denies that, in the deter-
mination of the deficiency herein, the respondent erred
in the manner and form as alleged in subparagraphs (a)
to (d), inclusive, of paragraph 4 of the petition.
5. (a) and (b). Denies the allegations of fact con-
tained in subparagraphs (a) and (b) of paragraph 5 of
the petition.
5. (c). Admits the allegations of fact contained in
subparagraph (c) of paragraph 5 of the petition.
5. (d) and (e). Denies the allegations of fact con-
tained in subparagraphs (d) and (e) of paragraph 5 of the
petition.
Denies generally each and every allegation contained
in the petition not hereinbefore specifically admitted,
qualified, or denied.
12a Appearances
WHEREFORE, it is prayed that petitioners’ appeal be
denied and that the respondent’s determination be in all
respects approved.
Cuartes W. Davis,
Chief Counsel,
Bureau of Internal Revenue,
Counsel for Respondent.
Of Counsel:
Tuos. F. CALLAHAN,
District Counsel,
| James F. Kennepy, Jr.,
) Special Attorney,
Bureau of Internal Revenue.
PROCEEDINGS BEFORE THE TAX COURT
OF THE UNITED STATES.
November 11, 1953—10: 30 a.m.
(Met pursuant to notice.)
BErore:
| HonoraB_Le CLARENCE V. Oppsr, Judge.
APPEARANCES:
Wri1aM Patrick Criyne, Ese.,
NBC Building, Cleveland, Ohio, appearing for
the Petitioners.
James F. Kennepy, Jr., Ese.,
1017 Euclid Building, Cleveland, Ohio,
(Honorasce Eart HEmMAN,
Chief Counsel, Bureau of Internal Revenue) , ap-
pearing for the Respondent.
Petitioners’ Opening Statement 13a
(3) The Court: Docket No. 44257, Henry P. and
Nancy A. White.
State your appearances for the record, please.
Mr. Clyne: William Patrick Clyne for the Petitioners.
Mr. Kennedy: James F. Kennedy, Jr., for the Re-
spondent.
The Court: Before we go any further, I didn’t ask
you a few minutes ago, what is your estimate of the time
in this case?
Mr. Clyne: Two and a half to three hours.
The Court: Does that include cross examination?
Mr. Kennedy: Yes, your Honor.
The Court: You say you have no witnesses?
Mr. Kennedy: I have no witnesses.
The Court: Proceed, please.
Openinc STATEMENT ON BEHALF OF THE PETITIONERS.
Mr. Clyne: If the Court please, Petitioner in this case,
particularly Henry P. White, is a graduate engineer and
licensed in Ohio and in Maryland and who since 1936 was
operating a research laboratory in Cleveland in late years
in Maryland.
The principal part of the engineering field that Mr.
White’s activities related to related to guns and ammuni-
tion (4) and kindred or associated engineering products.
Mr. White holds himself out for use and hire to both
Governmental Agencies and private industry and has
served them both.
In addition to the personal service that he has ren-
dered directly for hire to both industry and Government,
he has published works that are the keystone of identifica-
tion in ballistics. In the conduct of this business, he has
a number of employees who aid and assist in the research
and the performance of the services rendered to anyone
who has a right to the information that his laboratory
produces.
The issues involved in the case are simple. The same
issue presents itself in both years. We believe and will
prove that all of the expenses that have been disallowed
a i a a a nail OO ORG OF PLEO OT Re IF OTT
a
l4a Petitioners’ Opening Statement
: by the Commissioner are ordinary and necessary expenses
and should have been allowed under the Revenue Act. The
disallowance and the contention of the Government was
that these were not expenses such as were contemplated
by the Statute. I believe that the Government as well will
agree that the mathematical amounts involved in the dis-
allowance in both years are accurate and that they repre-
sent expenditures made by Petitioners in the conduct of
their business during the years that are involved. This
will simplify the proof, if the Court will permit us to treat
the issue of usefulness and deductibility of these amounts
both years as one issue.
The Court: I’m not sure I understand your sugges-
tion. (5) Do you want the witnesses to testify at the same
time about both years?
Mr. Clyne: Your Honor, the disallowance on the
basis—the contention of the Government, turning it
around in simple words, is that they have disallowed this
on the basis that it was a hobby and not a useful business
purpose, We contend that it is and has been and the
reason for the disallowance that the Government dis-
allowed these items as a deduction was the same reason in
both years and we propose, if the court will permit us, to
prove out our case as to the usefulness and business pur-
pose of this laboratory on a broad basis, rather than par-
ticularize it for each year, because the same work was
conducted by the laboratory in broad general terms in
both years that are involved in this case.
The Court: Well, I’m afraid I still don’t follow what
it is that you are asking about; but is it a fact that that is
something that will arise as the proceeding goes along?
Mr. Clyne: Yes, sir.
The Court: Rather than something I have to rule on
now?
Mr. Clyne: Yes, your Honor.
The Court: Now, coming to your Assignments of
Error, your Assignment of Error “c’”—well, first of all,
(6) Assignment of Error “b” determined the failing to
PO LEG CE CLT LI ION IEG FEF ICU LE DIOL DELS 6 PE PFS ———————
_—
Petitioners’ Opening Statement 15a
order a refund. Is that by way of stating the claim of
overpayment?
Mr. Clyne: Yes, your Honor.
Mr. Kennedy: Your Honor, the Statutory Notice says
that they are entitled to that over statement, because the
deficiency was not refunded. The usual instructions in the
Statutory Notice make it a part and include it, so I believe
he was following the instructions. That has nothing to do
with the issue of returns. It is just that the payment was
held up because an ultimate deficiency was determined.
The Court: These taxes are for other years?
Mr. Clyne: It’s one year.
Mr. Kennedy: It’s an arithmetical mistake, the re-
fund is based on.
The Court: What about the next one, the $1,092.07?
Mr. Kennedy: That again is the $1,092.07. The Statu-
tory Notice indicates such: “You further contend that the
amount of estimated tax having been paid as shown on
Page 1 of th. return was under-stated in the amount of
$1,092.07. Investigation discloses that both contentions
are correct. However, another adjustment has been made
resulting in a deficiency of income tax. Therefore, your
claim for refund has been denied.”
The Court: You say something was understated?
(7) Mr. Kennedy: Apparently on Page 1 of his in-
come tax return, he understated the payments he made on
the estimated tax. He actually paid more than that.
The Court: You mean the installments paid are
greater than the income tax?
Mr. Kennedy: That is correct, your Honor.
The Court: I understand between you gentlemen
there is no dispute as to Assignments of Error “b” and “c”,
that being conceded by the Respondent, as I understand.
Mr. Kennedy: That’s correct, your Honor. They will
be conceded by the Respondent. Assignments 4-b and 4-c
are factually correct.
The Court: 4-b and 4-c, so that leaves only “a” and
“d”, which relate to the deductions that Mr. Clyne has
been referring to.
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Respondent’s Opening Statement; C. H. Goddard, Direct
Mr, Kennedy: That’s correct, your Honor.
Mr. Clyne: That’s right, your Honor.
The Court: That concludes your statement?
Mr. Clyne: Yes, your Honor,
The Court: Do you have anything?
OpeNING STATEMENT ON BEHALF OF THE RESPONDENT.
Mr. Kennedy: I think, your Honor, Mr. Clyne has
accurately stated what the issues are, except what the
Government contends. We do not exactly contend that
this man’s operations are a hobby, nor that it does not
serve a useful (8) purpose. We think that the evidence
the Petitioner will put on will show it did serve a useful
purpose. We do say, however, that the business was not
operated for a profit and therefore the losses cannot be
allowed; and secondly, that notwithstanding the first con-
tention, the expenses were not ordinary and necessary to
produce an income, the gross income which was reported
for these years for these activities under Section 24, under
which this latter contention is being made. It is covered in
the Statutory Notice.
I think more argument would be better saved for the
brief, however.
The Court: Well, it’s a matter of getting the issues
clarified, so both sides will know how to proceed with the
case.
Proceed.
Mr. Clyne: Call Calvin Goddard.
Whereupon, Catvin H. Gopparp called as a witness
for and on behalf of the Petitioners, having been first duly
sworn, was examined and testified as follows:
The Clerk: Have a seat, please, and state your name
and address, please.
Drrect ExaMINATION by Mr. Clyne.
(9) Q. Will you state your name, please? A. Calvin
H. Goddard.
_
Calvin H. Goddard, Direct Examination lia
Q. And your address, please? A. 3533 Quebec Street,
N. W., Washington, D. C.
Q. What is your present connection with the Govern-
ment, Colonel? A. I am a Colonel presently commissioned
in the Medical Corps in charge of the preparation of the
history of the U. S. Medical Department in World War II.
Q. When was your association with the Army, when
did it commence? A. I was commissioned a First Lieu-
tenant in 1915, went on active duty in 1916.
Q. You are a graduate medic, are you not? A. Yes.
Q. When you went into the service in 1916, what
service were you connected with? A. I was in the Medical
Corps at that time.
Q. How many years did you stay in the Medical
Corps, Doctor? A. Until 1920. I resigned in June, 1920.
Q. And immediately after that, what work did you
do? A. I became a medical administrator. I was for some
years assistant director of Johns Hopkins Hospital in
Baltimore and of the Cornell Clinic in New York City.
(10) Q. Following that, what service did you have?
A Following that I resigned from Cornell and indulged
a desire I had always had to go into experimental work in
small arms.
Q. And where did you engage in that? A. I joined
with three others to form what we designated the Bureau
of Forensic Ballistics in New York City.
Q. What was the nature of the work you were at-
tempting to do in that laboratory? A. We were attempt-
ing to develop instruments and techniques whereby it
would be possible to identify positively a given bullet or
empty cartridge case to the weapon that had fired it.
Q. How many years were you engaged in research
with that? A. I did some research in it before I went to
New York on my own about a year and while I was in
Baltimore and then the three of us, the four of us worked
together from 1924 to the end of 1926. Then I worked on
alone after that.
Q. Did you devise such a method? A. We did.
ELLIO POLLE LLL OT IO LT ET
18a Calvin H. Goddard, Direct Examination
Q. What was the method that you used that finally
came into existence? A. Well, we applied an instrument
which had long been known, called the comparison micro-
scope. We applied this instrument (11) to the study of
fired bullets and cartridge cases. That gave us immedi-
ately the means of making these identifications.
Q. And is that system used now in the world? A.
Throughout the civilized world, yes.
Q. And that ull came as a result of your research that
you and your associates did in New York? A. Yes, sir.
Q. When was it first used, was it in the Valentine
murders in Chicago? A. No, we had been using it since
the spring of 1925. The Valentine murders were in Febru-
ary, 1929.
Q. And is that, for instance, the same method that is
used by, let’s say, the Federal Bureau of Investigation and
all large and small police departments in the United States?
A. It is.
Q. Would you tell us, if you could, please, after you
had devised this method by which shells and bullets were
identified, what return, if any, did you get from trade or
business or Government agencies for your method? A.
What return?
Q. Yes, in money. A. None.
Q. Now, following your period of research and the
development and spreading of the use of this method that
you had devised, (12) where did you next work? A. Well,
as I said, we started applying this instrument in the spring
of 1925 and scientific advance travels relatively slowly, so
it was probably some time in 1927, I think, before Prose-
cutors began to become interested in employing me as a
consultant on cases involving firearms and after a be-
ginning had been made, the work increased very rapidly
and this Valentine day affair in Chicago to which you have
referred brought it so prominently in the public eye, that
from that time on it was a complete success scientifically
and police departments undertook to instruct specialists in
using the comparison microscope and the other equipment
DP POLINA SORES LE NOLIN RIE OI ELLE IL NO NL GG GEE ELE OBL N Ke dl
Calvin H. Goddard, Direct Examination 19a
that goes with it and all major police departments now have
arms identification laboratories throughout the world, so
as I say, the Valentine day affair was the one that really put
it on the map.
Q. Did you after that become associated with any
school? A. Yes, a very wealthy man in Chicago who had
been foreman of the Coroners Jury investigating the
Valentine day massacre was so impressed by this new de-
velopment in police procedure that he asked me if I would
set up a laboratory in Chicago to render service without
charge to all police agencies in the Chicago Area, service in
any cases involving firearms, and that was to be his con-
tribution to society, and I suggested that if he wanted to do
that much, why not establish a complete (13) crime de-
tection laboratory patterned on those which had been in
existence overseas for generations.
He had never heard of such a thing, but he thought the
idea was good and he sent me to Europe and I spent sev-
eral months visiting the outstanding police laboratories and
medical legal institutes in 13 West European Countries,
and when I returned, based on the information I had
brought together, he put up the money to establish the
scientific crime detection laboratory of Chicago, first in
affiliation with and then absorbed by Northwestern Uni-
versity of Chicago as a function of its Law Department.
Q. And did you have an assignment on the teaching
staff, and if so, what were you on the teaching staff? A.
From 1930 until my resignation some years later, I was
professor of police science of the law faculty of North-
Western University.
Q. Isn’t it a fact that during the time you were a
professor at Northwestern in that Division, that the lie
detector that is commonly used in the United States was
developed and perfected? A. In a measure; yes, sir. I
engaged Leonarde Keeler, the developer of the lie de-
tector, for my staff in the crime laboratory in the summer
of 1930, and he was with me as long as I was there.
he. ety P et, pete > CODE A OER EE EO NPE LE DIOL AM AA MLE
(ATCO ALENT Ee RR mt ty a
20a Calvin H. Goddard, Direct Examination
(16) By Mr. Clyne:
Q. Are you familiar with the nature of the work that
is being done by the H. P. White Laboratory by Mr. White
and his associates? A. I am familiar with the general
nature of their operations, probably with not all of their
activities.
Q. From your experience as it is identified with arms
and ammunition, what is your opinion as to the need and
necessity for a privately-operated laboratory in America
today? A. I think there is a need for such a laboratory.
Q. Would you tell us why? A. Because most of the
advance in small arms research over the years with which
I have been familiar with it has resulted from the individ-
ual efforts, of you might say, dedicated persons who became
convinced that they had a new and good idea, and that it
should be developed, ordinarily from a patriotic stand-
point, for the benefit of the nation. But in periods be-
tween wars nations are not especially interested in ord-
nance development, at least they have not been in the
past and these individuals receive very little encourage-
ment. They are not offered the facilities of ordnance estab-
lishments for testing and improving design. The commer-
cial manufacturers are ordinarily not interested, unless the
design involves something which can be made more cheap-
ly than of current models, or something which they feel
they might take (17) over and sell to a Government.
So, the individual is left to his own resources to carry
out all the engineering steps in connection with the de-
velopment of his ideas and unless his resources are very,
very great, he is not able to carry the idea forward.
Given an organization, such as the White Laboratory,
a man with modest resources aided by the engineering
know-how of White and his associates could readily per-
fect something that might be of extreme value nationally
or, commercially.
So, I feel that the laboratory does fill a spot which did
not previously exist.
Q. Do I understand you correctly that were I to man-
ufacture a gun or a shell and wished to avail myself of the
Pk Gets EE ALS BACILLI SLI ILE DEIIC NE EGIY SOILD LIDLEP AGEL LES IED = |
Calvin H. Goddard, Direct Examination 21a
services of the engineering departments of the recognized
large or small manufacturer of arms or munitions, that
they do not aid or assist private individuals, unless it had
some gain to themselves beyond just being compensated
for their time? A. That’s my general reaction to the ex-
periences I have had or experiences others have had who
have been interested in ordnance development.
Q. Isn’t it a fact that most of the inventive genius of
Americans who have invented arms and munitions who
were not part of the big group, that they have been almost
compelled to sell their inventions to foreign nations be-
cause of the (18) unwillingness of Americans to absorb
them? A. Many such instances exist, yes.
Q. Now, in the current market, I am talking about as
of now, in the development in the last five or six years,
has there been any activity from a group known as Self-
Loaders? A. Well, you mean by that people who already
load their own ammunition?
Q. That is correct. A. Those people have been active
for three-quarters of a century, but they have been un-
usually active in the past few years by reason of the pro-
hibitive, almost prohibitive cost of ammunition, the small
arms ammunition if you buy it over the counter these
days. A man that is not wealthy can’t afford to keep in
practice.
Q. Coming back to the time you were professor at
Northwestern University in charge of that division that
related to crime detection, did you have a library of guns?
A. We had about 2,000, as I recall.
Q. Did that represent one of each type of gun, or more
than one in each classification? A. We tried to get one of
_ every make and model and calibre in every length of barrel
in which it was made.
Q. Did you also have shells? A. We had thousands of
loaded cartridges, empty primed cartridge cases and the
separate bullets as a reference library.
(19) Q. Is that a necessary adjunct to rendering a
service such as you were doing at Northwestern or White
does? A. It’s very definitely necessary for crime detection
as ONLI RT ITN ee SI Wi, cet ate Ba) te pid ees oaks Mi ed
7 ai erin
<<
22a Calvim H. Goddard, Direct Examination
and if White wishes to render a very complete service to
persons interested in arms and ammunition, the larger
reference collection he can maintain, the more complete
the service he can offer.
Q. The individual user, yow have stated, has need for
the laboratory techniques of organizations such as Mr.
White’s on his re-loading problems, am I to understand
that that is it? A. If the independent user of firearms is
willing to stay within the prescribed narrow limits laid
down by the loading companies as a proper field within
which to carry out his re-loading activities, he doesn’t need
the services of a company like White. However, if he feels
that he can develop loads that are—with his weapon and
with the cartridge cases adapted to that weapon, loads of
greater velocity or energy or accuracy, then he has to in-
voke the aid of an organizatiom such as White, unless he
has all the elaborate equipmemt which they possess and
very few independent loaders have such equipment.
Q. So is that group of people that are experimenting
with loads for accuracy or other reasons, is that group in-
creasing today, to your knowledge? (20) A. Well, the
National Rifle Association has something over 300,000
members, and I don’t know what proportion, but a very
considerable proportion of those re-load their own am-
munition, in evidence of which is the number of re-loading
tools on the market which, within my period of knowledge
increased from about two makes to 20 or 30 makes, prob-
ably.
Q. When did that increase come to your knowledge?
A. Since World War I and more intensively since World
War II.
Mr. Clyne: Thank you. Your witness, Mr. Kennedy.
* * * * %
(33)
Whereupon, E. W. Kronsacu, called as a witness for
and on behalf of the Petitioners, having been first duly
sworn, was examined and testified as follows:
PORE ~ PREGGO LOL PLL LO OO PERE OE ee ry FPO LOY Mitte d
E. W. Kronbach, Direct Examination 23a
The Clerk: Have a seat and state your name and ad-
dress.
The Witness: E. W. Kronbach.
The Clerk: Your home address, please?
The Witness: 2016 Rossmoor Road, Cleveland
Heights.
Direct ExaMInaTION by Mr. Clyne.
Q. What is your business connection, Mr. Kronbach?
A. The Van Dorn Iron Works Company.
Q. What is your particular status in the Van Dorn
Company? A. Metallurgical work.
Q. Have you had any business dealings with the H.
P. White Laboratories during the years you have been at
Van Dorn? A. Yes, we have.
Q. Would you tell the court just exactly when and
what it was, please? A. I believe it was started the latter
part of 1940 or the early part of 1941. It was at a time
when our company started armor plate development, and
the production of armor (34) plate. During that period it
was becoming extremely difficult to obtain the normal
materials that we needed for our production, so I believe it
was at the suggestion of the local ordnance department at
that time that they suggested that armor plate might be
something that might fit into our particular type of fabrica-
tion and our equipment, so we decided to go into the armor
plate business to make armor plate for all the various
armed forces.
As a matter of fact, we received from the Government
an educational order to make up three complete tanks.
That, of course, was done with the idea in mind to educate
our organization and build up an organization and also
gain the experience in the fabrication as well as the heat
treatment and actual production of armor.
Well, during 1941, the early part of 1941, there was
quite a demand for other types of armor plates, such as for
aircraft and gun shells and light armor that called at that
time not only for our own armed forces, but for orders
placed here by foreign governments.
EE
24a E. W. Kronbach, Direct Examination
The result was we endeavored to make armor for these
various organizations and found that we more or less had
to start from scratch. There was very little knowledge and
very little you could read about it. We more or less had to
develop this knowledge and this experience ourselves.
One of the requisites in the production of armor was,
(35) of course, that the armor was always made under
very rigid specifications for the Army or Navy or Air
Corps, as the case may be, and the final test before a heat
of steel could be accepted and before it could be fabricated
had to be made at the Government proving grounds and
those were ballistics tests primarily. Each plate has a dif-
ferent thickness of platings, you have different specifica-
tions required of different types of projectiles, and you had
to hold certain projectiles at various speeds, each projectile
carrying its own range. We made armor during the war, for
instance, three-sixteenths inch thick up to two inches thick
under probably 15 to 20 different specifications. Each one
was different. It required different types of steel, different
chemistries of steel, so the first thing we found when we
started the development of this armor plate under the first
specification we worked under was we made up what from
our point of view as metallurgists seemed to be plates of the
proper hardness to withstand the particular projectiles
which this plate had to resist. We would send those down
to the proving grounds, and a week or so later we would get
a report they were right or wrong, but it took a great deal
of time and we realized that we had to be present during
the time these plates were tested, because it was not only a
question whether they would withstand these particular
projectiles, but we learned by looking at the type of plate,
the hole, whether the projectile (36) went through the
plate, whether it was a clean hole or jagged hole, whether
those things vere important in working out the proper
metallurgical processes to get the most possible use out of
the plate.
So as the demand for the armor plate increased and
we had heat after heat coming in, we had difficulty in get-
ting and submitting plates to the proving grounds on an
E. W. Kronbach, Direct Examination 25a
experimental basis, because they were naturally busy,
they were working three shifts a day and they could ac-
cept only so many plates on a purely experimental basis.
Their main function was to approve plates by their ballis-
tics tests or to approve heats by their tests; so we could only
do a certain amount of that and as we had to use so many
different types of analyses, we realized that we were simply
tied and that we were losing time, unless we found some
way of testing these plates ourselves, at least the experi-
mental plates, so as to expedite our experience and our
knowledge in the development of the particular processes
that had to be used.
So we started looking around and trying to find out
whether there was any possible way we could obtain the
necessary equipment that would allow us on our own range
and we put in our own testing range, a full-size range, 300
yards and we had to find the equipment that would enable
us to test or to learn the actual speed of the projectile as it
hit the plate. That was the basis of the final test.
(37) Now, if we could do that, it would save us all this
time shipping back and forth and sending our men back
and forth. We could treat a plate, a heat treat in five
minutes like that on the range.
That was when we learned about the H. P. White
Company and I remember the first time we saw them, we
went over to their laboratory on East 93rd and Euclid
Avenue, somewhere around there, and they had even then
a small range and they had, I recall, methods of checking
the speed of the projectile. That’s exactly what we wanted
and we talked to them whether they could do something for
us in working out some sort of apparatus that would en-
able us to determine the speed of these projectiles as we
shot them at the armor plate. They said they could, so we
immediately contacted them, made a contract with them,
so that they would supply the equipment, which they did
very promptly. As a matter of fact, they came over and
installed it and spent a great deal of time over it helping
us work out the actual procedure and methods and cal-
culation and so forth, so that we would get the actual re-
sults of their tests.
™ . . me be
26a E. W. Kronbach, Direct Examination
After we put this in, we saved I don’t know how much
time, but we saved time and time again, because we could
get a heat of steel in. We could make a half a dozen ex-
perimental plates, using different heat treatments inside
of 24 hours after the heat treatment was completed, we
could test these (38) plates. We knew the best procedure
for that particular chemistry of that particular type of steel
we were using for that plate, and we could make up im-
mediately the final plates for the proving grounds, and
that way we could start production.
Not only that, but at that particular time in 1941 and
1942, there was a demand for armor plate by all the armed
forces which was tremendous. As a matter of fact, we
were working three 8-hour shifts around the clock, Satur-
days, Sundays, and every holiday. By having this partic-
ular equipment we were not only able to save all this time
and to use our own organization in the best heat treatment
of these various steels, but as time progressed the shortage
of alloys became a very serious problem in the armor plate
production. We were constantly told every so often we
could only use so much metal or so much chrome or so
much of this or so much of that. It meant experimental
heats time after time and we had to develop the best heat
treatment so as to still meet these specifications.
We made dozens and dozens of experimental plates
from these various heats that wou!d be submitted by the
steel companies trying to work out a satisfactory heat
treatment that would enable us to use these lower alloys of
steel for the specifications of the Army, Navy, and Air
Corps. That’s where we saved so much time.
(39) As a matter of fact, we couldn’t have gotten
along without some instrument, as I understand, that
would help us meet the right requirements.
Q. Would you tell me who recommended the White
Company to you at that time? A. I believe we learned
about it through one of our engineers who had met Mr.
White and some of his associates and at the time we
brought this up, I think he is the one that told us we could
do it and, as a matter of fact, he organized a little group of
a ie Se a la “ . : Mattei = |
|
Arthur E. Hart, Direct Examination 27a
three or four of us to go over and see the laboratory, which
they had at that time.
Q. Now, you have an engineering group in your or-
ganization? A. Yes.
Q. How many in your organization are graduate li-
censed engineers? A. I suppose maybe 35.
Q. Do they do experimental work in connection with
your operations at Van Dorn? A. Yes.
Q. Does the Engineering Department group of En-
gineers together, does that organization make a profit of
itself? A. I don’t suppose it does, no. We have got to de-
pend on what the results will be after we develop it.
Mr. Clyne: Your witness.
* * * * oa
(41)
Whereupon, Artur E. Hart, called as a witness for
and on behalf of the Petitioners, having been first duly
sworn, was examined and testified as follows:
The Clerk: Have a seat and state your name and
address, please.
The Witness: Arthur E. Hart, 2140 Rockside Road,
Seven Hills Village.
The Court: Will you instruct the witness this isn’t
a private conversation between him and the reporter.
Drrect ExaMinaTIon by Mr. Clyne.
Q. Your name is Arthur E. Hart, is it not? A. That’s
right.
Q. And your home address is what? A. 2140 Rock-
side Road, Seven Hills Village.
Q. What is your business, Mr. Hart? A. I operate
the Hart Arms Company.
Q. That is located in the City of Cleveland? A. 1201
St. Clair.
Q. How long have you been engaged in that business?
A. Thirty-three years.
—_
Za Harley Benethum, Direct Examination
Q. And prior to that time, were you identified with
arms or ammunition? A. Well, I shot on several state
teams, but up to that (42) time I wasn’t engaged in the
business.
Q. And your present business is the sale of guns and
ammunition as two of your products to the general public,
is it not? A. Yes, sir.
Q. During the time that you have been engaged in
the business, have you had an occasion either to use the
H. P. White Laboratories yourself or recommend its use
to others? A. I recommended their use to others, espe-
cially the hand loaders.
na *« ” a” +.
(46)
Haritey BenetuuM, called as a witness for and on
behalf of the Petitioners, having been first duly sworn,
was examined and testified as follows:
The Clerk: Have a seat and state your name and
address, please.
The Witness: Harley Benethum, 3400 Lee Road,
Shaker Heights.
Direct EXAMINATION by Mr. Clyne.
Q. What is your occupation? A. Chief of Police,
Shaker Heights Police Department.
Q. In the course of your service with the Police De-
partment, have you made use of the services of the H. P.
White and his associates and their laboratory? A. I
have.
Q. Would you tell the court just what use you have
made of it over the period of years? A. I think it was in
1947 that I made use of their services. I was a lieutenant
at that time and the Fraternal Order of Police Lodge,
Shaker Heights Police Department, purchased a hand
loading device. Our purpose in purchasing it was to re-
load cartridges for use on our pistol range for target prac-
tice only. During one of our target shoots, one of the police
LLOES Pom ’ : : —s
Harley Benethum, Cross Examination 29a
guns exploded in the hands of one of the officers during
(47) target practice and I don’t recall at this moment how
we learned of the H. P. White Company, but at any rate
we went to the White Company for information as to
whether it might have been a defective gun or defective
ammunition. We were new in the game and didn’t know
too much about hand loading and didn’t know where to
attach the blame for this gun having exploded and we
went to them for advice.
Q. Do you have a ballistics laboratory in Shaker
Heights? A. We do not.
Q. Does the Cleveland Police Department do the bal-
listic examination? A. Yes, they do. In criminal cases,
you mean?
Q. Yes. A. Yes.
Q. Do you know from your own experience what
equipment and use, whether or not they make use there of
the catalogue of cartridge manufacturers and base mark-
ings that Mr. White put out? A. I know at one time that
Inspector Cowles had such a book, the book you speak of.
Q. Have you had any other, was any other further
service rendered by White to you or your organization
during the years? A. Yes, we went to the White Company
for information with respect to the type of powder and
kind of powder and (48) quantity of powder that we
should use in hand reloading.
Mr. Clyne: Thank you. Your witness.
Cross ExaMINnaTION by Mr. Kennedy.
Q. What did the H. P. White Company charge you for
the first service they performed for you in determining
what was— A. I wasn’t Chief at that time and I can’t
answer that question. I don’t know. I don’t even know
whether they did charge. If they did, I don’t know. I
wasn’t Chief at that time and have no experience.
Q. Do you know of any charges they made for subse-
quent services performed? A. No, I do not. In fact, there
was no subsequent service, to my knowledge.
eS ear
—
30a H. Benethum, Re-Direct; T. D. Cook, Direct
Mr. Kennedy: Thank you. That’s all the questions.
Mr. Clyne: I have one question, Chief.
Re-Drrect ExaMINATION by Mr. Clyne.
Q. Was the service the Whites rendered to you, such
as you described, the loading and ammunition that you
did use by hand loaders on your hand loaders, was that
of service to you and your organization? A. Very im-
portant, very important, yes.
Mr. Clyne: That’s all.
(49) Mr. Kennedy: Thank you. I have no questions.
(Witness excused.) |
Mr. Clyne: Mr. Cook.
Whereupon, T. Dickerson Cook, called as a witness
for and on behalf of the Petitioners, having been first duly
sworn, was examined and testified as follows:
The Clerk: Have a seat, sir, and state your name and
address, please.
The Witness: My name is T. Dickerson Cook. My
address is 2424 Park Place, Evanston, Illinois.
Direct ExAMINATION by Mr. Clyne.
Q. Mr. Cook, what is your business connection? A.
I am director of the Institute of Applied Science in Chicago.
Q. What is the business of the Institute of Applied
Science? A. The Institute of Applied Science is a home
study school teaching identification and investigation work.
Q. What work do your graduates do? A. Our gradu-
ates go into identification bureaus and law enforcement
agencies and approximately a third of all such (50) iden-
tification bureaus in this country are headed by our former
students. We also have graduates working in over 800
identification bureaus in this country. Many of them are
not heads of their departments, but they are employed in
those bureaus.
T. Dickerson Cook, Direct Examination 3la
Q. Now, have you had need or use for the service of
the H. P. White Laboratory during the time you have been
director of your institution? A. I have.
Q. What work do they do for you? A. We engaged
H. P. White Laboratories approximately 18 months ago
to re-write our instruction lessons on firearms identifi-
cation.
Q. And that is currently being or about to be used
by new students in your courses? A. That is correct.
Q. And may I ask on what basis you determined to
use H. P. White and his associates to do that? A. There
were three reasons why we engaged the H. P. White
Laboratories to do this editorial work for us. The first
reason was that we knew they had the technical knowledge
requisite to preparing such text material.
The second basis was that we knew from the books
that they had published, the professional articles that they
had written, that they had the editorial skill to write the
text (51) material in the method that we wanted it pre-
pared.
The third reason for engaging them was that we knew
that the H. P. White Laboratory had the requisite photo-
graphic material to prepare the illustrations that we wanted
included in these lessons.
Q. Are your students or graduates limited to the
United States? A. They are not. We have students and
graduates in over 50 countries.
Q. Am I to understand that the courses that you pre-
pare and use are printed in more than one language? A.
No, sir; they are printed in English only.
Q. When you made your contact with the White
organization to re-write your work on guns and ammuni-
tion identification, was price the factor that determined the
selection of them? A. Price was a factor, yes, in this re-
spect; that we paid the H. P. White Laboratory several
times more for preparing this lesson material than we had
ever paid any previous writers.
Henry P. White, Direct Examination
Mr. Clyne: Your witness, Mr. Kennedy.
Mr. Kennedy: No questions.
(Witness excused.)
(52)
Whereupon, Henry P. Wurre, Petitioner herein, hav-
ing been first duly sworn, was examined and testified as
follows:
The Clerk: Have a seat, sir, and state your name and
address, please.
The Witness: Henry P. White, Joppa, Maryland.
Direct ExaAMINATION by Mr. Clyne.
Q. Mr. White—and for the court’s information, Mr.
White’s hearing is not always good and if I do have to
speak loudly, you will forgive me.
You gave your address as Maryland, Mr. White. How
long have you been living in Maryland? A. I have been
living in Maryland for the past year and a half, sir.
Q. Prior to that time you were a resident of Cleve-
land? A. Yes, sir.
Q. At the present time is your laboratory in Mary-
land? A. Yes, sir.
Mr. Clyne: Mark this for identification, please.
The Clerk: Marked for identification, Exhibit 1.
(The document above-referred to was marked
Petitioners’ Exhibit 1.)
Q. I am handing you herewith that which has been
marked Petitioners’ Exhibit 1, and ask you if you will tell
me what it (53) is, if you will, please? A. That is the
establishment of the H. P. White Laboratory in Maryland.
Q. Now, geographically, where is it located with ref-
erence to your residence, how many miles away? A. Ap-
proximately 11 miles northeast of my home.
Q. Now, during the time that you had your labora-
tory in Cleveland, it occupied a portion of a piece of prop-
Henry P. White, Direct Examination 33a
erty that you personally owned, did it not? A. That is
right, sir.
Q. And in what respect did it differ from the instal-
lation that is now at Bel Air, I mean, was the installa-
tion at Bel Air, larger or smaller than the other? A. This
installation is much larger, sir.
Q. What was the reason for changing the scene of
your operations from Cleveland to Bel Air, Maryland?
A. The physical confines of the Cleveland, Ohio, labora-
tory made it almost impossible for us to embrace certain
types of work which we wanted to do research in. The
new laboratory in Maryland is located centrally along the
general bulk users of our particular services; namely, we
are not too far from Washington, not too far from the New
York-New England arms manufacturing districts, and we
also are relatively close to several Army and Navy proving
grounds.
Q. You have a larger range, indoor range in Bel Air,
(54) than you had here, do you not? A. Yes, sir. We have
had only a 25-foot range here in Cleveland. We have a
50-yard range in Maryland.
Q. You also have an outdoor range, do you not?
A. Yes, sir; we have a 400 meter range in Bel Air in the
Maryland establishment, where we had no range at all
for doing outside work, longer range work.
Q. Mr. White, you are a graduate of Cornell with a
degree in engineering, are you not? A. Yes, sir.
Q. And you are a licensed mechanical engineer in
Ohio as well as in Maryland, are you not? A. Yes, sir.
Q. And does the work that your laboratory does re-
quire the skills of an engineer? A. Yes, sir.
Q. Have you in the course of your service as a con-
sulting engineer done work for the United States Govern-
ment in any department? A. Yes, sir.
Q. Is it a fact that you have now a contract with the
Navy? A. Yes, sir.
Q. Have you done work for the Treasury Depart-
ment? A. Yes, sir.
Varies
a
Aa Henry P. White, Direct Examination
(55) Q. What work did you do for the Treasury De-
partment? A. We were considered in the Cleveland area
as the most competent people to evaluate—I was going to
say subversives, that is not the word I mean, illegal
weapons that had been seized, such as for instance I re-
member one case of a Japanese machine gun somebody
brought home for a war souvenir that had been seized,
and, of course, it had to be evaluated, and we were the
people to do it.
Mr. Clyne: Would you mark this?
The Clerk: Marked for identification Exhibit 2.
(The document above-referred to was marked
Petitioners’ Exhibit 2.)
a Bd a ” cd
(56) Q. I am handing you herewith that which has
been marked Petitioners’ Exhibit No. 2, and ask you
whether or not you received such a letter from the Treas-
ury Department? A. We did.
Q. In the course of your work at the laboratory, do
you do work for organizations known as the National Rifle
Association? A. Yes, sir.
Q. Do you do work for private individuals? A. Yes,
sir.
Q. As well as organizations? A. Yes, sir.
Q. Does your laboratory have regular hours during
which it operates and the employees report? A. It very
definitely does, sir.
Q. Do the employees—what hours does the labora-
tory (57) work? A. We work from eight o’clock in the
morning until 4:30 in the afternoon, normally speaking.
Q. Do you keep track of the hours that each and
every employee works? A. We do, sir, and we have a
timecard system.
Q. Do you have a cost system that puts the cost of
their time to each and every project? A. Yes, sir.
Q. And that cost and that time is charged to cus-
tomers? A. Where it is applicable; yes, sir.
|
Henry P. White, Direct Examination 35a
Q. Now, in addition to the service that you render
engineeringwise to hand loaders, what other services do
you render to the public at your laboratory in Washington,
or in Maryland, or have you rendered here? A. We have
always been considered to have the facilities necessary to
carry on investigations which have to do with firearms.
Generally speaking, we do not take criminal cases. How-
ever, we do take civil cases and we have had a few of them,
not a great many, but the ones we have, have been very
conclusive and I can safely say that I am sure that every-
body was very satisfied with our services and the way in
which we conducted our investigations.
Q. In the course of your work at the laboratory, have
you done work relative to speed photography? (58) A.
Yes, sir; we have. In the past year we have obtained the
necessary high-speed photographic equipment that is so
necessary for the analysis of certain types of bullet motion
and not only bullet motion, but also certain types of high-
speed machine motion, such as, well, if I might give an
example, a shuttle loom to meet gears operating at rela-
tively high rotating speeds.
We have a motion picture camera there that takes,
well, I believe the high-speed runs close to 6,000 frames
a second. In other words, we can analyze what is hap-
pening when that machine is in operation in two different
ways to appraise something; one, to look at the thing
when it is not moving, and the other when it is not under
load or under power, and we are planning to exploit that
in the industries in the area in which we are operating at
the present time, give them a packaged unit that could
really be sold on the basis that we will analyze a certain
particularly troublesome problem that they have, they
not having the know-how and being able to use this equip-
ment can, as I say, obtain the service and do the job for
them.
We also have a microflash unit we use almost entirely
for this type of projectile problems. A microflash is a
very high-speed photo flash light and a microflash is one
r os
a Henry P. White, Direct Examination
millionth of a microsecond, actually, and our particular
light is capable of going down to two microseconds. You
can see (59) how you could stop the motion of a very
high-speed projectile down to the extent you would be
able to capture it out and analyze it from a photographic
plate.
Q. Now, am I to understand that the acquisition of
this photographic equipment in itself had to be supple-
mented with the engineering skill and know-how that was
developed in the laboratory during the last year or a year
and a half? A. Yes, sir; and in some of the preceding years.
We all crawl before we walk, and sometimes it takes longer
to learn one thing. You can’t say that you learn something
in a year and a half that perhaps is dependent upon some-
thing that you learned five years prior to that time, either
through constant use or by going to some school or through
some other experiences you might have.
Q. Now, the work that the employees and yourself
have done, so far as the establishment of a library, whether
the library would be considered to include guns, shells,
bullets, reference material and data of all kinds which you
use, has much time in the past been used to catalogue that
equipment for its use to the consumer?
I’m talking about the client or the customer that seeks
and gains your service. A. It has. The actual hard work
of garnering our sections from different pieces of source
material, cataloging, the codification, the classification of
all these items has (60) taken a tremendous long time in
order to be what we consider of salable commodity, some-
thing we can say we know a little bit about, cartridges and
so on, and we have them catalogued. We've got to have
something to sell him before he comes. We have done that
by keeping our name before the public in the publication
of articles and books.
Q. Now, speaking about the books you prepared, at
one time did your organization prepare a catalogue of car-
tridge manufacturers and base markings? A. Yes, sir.
Q. Was that sold to the general public? A. No, sir.
——
Henry P. White, Direct Examination via
Q. Who was it sold to? A. It was primarily sold to the
Armed Forces, to the law enforcement agencies, the peace
agencies, and I believe, I’ve forgotten exactly, there were
very few of those printed; as a matter of fact, a relative
few, I should say, probably not more than six or eight of
them ever got into private hands.
Q. Did the United States Government purchase them?
A. Yes.
Q. Who in the Government purchased them? A. The
Federal Bureau of Investigation and the Army and I would
have to look at my records for the rest of them.
Q. Now, in the course of the years following the war,
(61) has the request for services made upon your organiza-
tion by hand loaders increased? A. Yes, sir.
Q. Has the request for your services, so far as your
engineering opinion as to guns and ammunition, increased
so far as Governmental Agencies are concerned? A. Yes,
sir.
Q. You are presently carrying out a contract with the
United States Government now? A. Yes, sir.
Q. And that is on a cost plus basis, is it not? A. Yes.
Most developmental contracts are carried on that basis at
the present time, because no one can accurately foresee the
trend of research or the development. It’s not exactly what
you would say—you can’t make up research and develop-
ment as a batch apart, say a hundred bearings or some-
thing like that.
Q. Have you had any conversations with anybody
relating to the purchase or sale of the H. P. White Com-
pany? A. Yes, sir; I have.
Q. Who? A. I had conversations prior to my coming
to Cleveland with General Hatcher of the National Rifle
Association.
* * * * *
(62) Mr. Clyne: If the Court please, I will now offer
Exhibit 1 in evidence, that is the photograph.
The Court: That is this one?
Mr. Clyne: Yes, this is a copy.
Ba Henry P. White, Direct Examination
Mr. Kennedy: Respondent has no objection to Ex-
hibit No. 1.
The Court: Be received and marked in evidence.
(The document above-referred to was received in
evidence and marked Petitioners’ Exhibit No. 1.)
Mr. Clyne: I now offer Exhibit No. 2.
Mr. Kennedy: Respondent has no objection to Ex-
hibit No. 2.
Mr. Clyne: And I ask leave of the Court to substitute
copies.
The Court: But you are offering it as a photostat,
(63) is that correct?
Mr. Clyne: Yes, your Honor.
The Court: That has not been marked for identifica-
tion?
Mr. Clyne: No, your Honor.
The Court: The photostat will be received and
marked for identification.
The Clerk: Exhibit 2.
(The document above-referred to was received
in evidence and marked Petitioners’ Exhibit No. 2.)
Mr. Clyne: If the Court please, I know that there is
material to be offered on this letter in which counsel will
object. May I submit it to the Court?
The Court: Are you offering this?
Mr. Clyne: I am going to offer this in evidence as
proof of the standing offer to purchase the H. P. White
Laboratory.
The Court: Which paragraph is it, you say—
Mr. Clyne: I say it’s toward the end of the letter. I
have only read it once, but it’s toward the end of the letter.
The Court: I'll sustain the objection.
Q. Have you had conversations with the National
Rifle Association relative to a more extensive use of your
laboratory to supplement the service that they supply
their members? A. Yes, sir.
(64) Q. And would that require additional help and
service? A. We do not anticipate that at the present time.
Henry P. White, Direct Examination 39a
If I may explain further, I have been approached to per-
haps facilitate their starting a service to their members,
and to the buying public very similar to the Good House-
keeping Seal of Approval on certain guns and ammunition
and closely allied subjects; in other words, an NRA seal of
approval. Naturally, for such a seal to be given to a prod-
uct, it should be tested under certain recognized and mini-
mum standards in order that they could feel that they
were approving something. It would be done through the
normal research, customer research angle, such as random
buying and that sort of thing, so that it would be fair and
We say we are the only people in the United States
that have a laboratory like this having to do with firearms
that are not associated directly with one of the arms or
munitions manufacturers and consequently a natural con-
fidence should fall to an independent testing laboratory
such as we maintain.
We also have the confidence of the National Rifle As-
sociation behind us and we have been building this up for
a number of years and it appears that within a very short
time this thing is going to come to a culmination, the frui-
tion of all we have been working for in this particular (65)
field.
Q. Do you know, can you give us an opinion as of now
whether or not the operation of the laboratory during the
year 1953 would be in black or red or whether you made
a profit? A. We have made considerably more money than
we have made in any other year so far. I do not know
whether we will be in the black this year, but we have
every confidence that we will be able to operate in the
black next year.
Q. Percentagewise, if you can tell us, how much of
your income increased this year over last year, as of now?
A. I would have to check my figures, but I believe we are
doing twice as much business as we were doing last year.
Q. Is the fact that you are doing twice as much busi-
ness due partially to the scope of the fact that your labora-
tory operates in Bel Air as distinguished from your labora-
tory business here? A. Oh, it definitely is. There are con-
cree eenmmndeieemmmdenmmnties
40a Henry P. White, Direct Examination
tracts we have been able to take we could not have ac-
cepted in the City of Cleveland.
Q. One more question. Can you tell me, Mr. White,
approximately how much time of your own do you spend
on research at the laboratory as distinguished from the
time you spend in the management of your own affairs?
(66) A. I should say I spend 90 per cent of my time on
laboratory work.
Q. When you started this H. P. White Laboratory,
was it your intention then to sell your services to the pub-
lic? A. Yes, sir, it definitely was.
Q. Did you consult with other potential users whether
or not there was a use that you could make a profit out of
prior to the time you went in? A. I inquired, seriously
considered this very important step to me of establishing
this laboratory. I canvassed the field and some of the
people that I considered would know something about that
field to give me a little insight into what business might
be expected.
Q. And who were they that you talked with? A.
Well, I talked to Inspector Cowles down here on the Police
Station. He is quite prominent as a criminologist here in
town. He was in charge of the so-called Crime Lab down
there and he has a fund of knowledge on this gun iden-
tification work. It was only until, oh, the last ten years
that a great deal had been spread out as far as the identifi-
cation work was concerned. At one time he was actually,
well, not having to, but, of course, he was helping out in
civil cases of gun identification. He knew the field. So I
discussed it with him. The other person I discussed it with
is now deceased, Sergeant Harry Butts of the Metropolitan
Police (67) Department in New York City. He had been
in the game a number of years and he brought to my atten-
tion some of the facets of the identification work that
needed an awful lot of work done on them. The classifica-
tion of bullets was for the most part done by one system
or another. Sometimes there weren’t even two common
names to a cartridge or a gun. I could see there that there
was a possibility of bringing all this stuff together, throw-
Henry P. White, Direct Examination 4la
ing out the bad, keeping the good and doing something
with it.
Then there was another gentleman I talked to who is
right in this room at the present time, Colonel Goddard,
whom you heard before me. I made his acquaintance and
we were just talking it over last night how long we had
actually known each other. I believe it was prior to the
time he went to Chicago, but I can’t exactly remember,
but people interested in similar fields always gravitate to-
gether.
I believe I called him up one afternoon I had free in
Washington and made a point to go out and meet him and
discuss some of our mutual problems in the field involved.
It was people like that, I have talked to Hart of the Hart
Arms Company who you heard here. Of course, I have
known him since I was a boy. I talked to him about this
possibility of setting up a laboratory, a facility which would
be doing a number of different operations, not only crimi-
nal investigation, but this technical testing for reloading,
the proving of weapons (68) for the development of weap-
ons, to take civil cases, and as the ideas progressed, why
we were branching out further.
Does that answer your question, sir?
Q. Yes. Now, was it your intent when you went into
this to make a profit? A. Yes, sir.
Q. During the years that intervened between 1936
and now, some of those years you were in the armed serv-
ices, were you? A. Yes.
Q. How many? A. I was in the armed services for
almost four years.
Q. During that time, did your laboratory continue to
function and work, did you maintain your staff of em-
ployees during that time? A. Our staff of employees was
very, very small. It limped along, our laboratory did. It
was a question of my being, as every officer is, on 24-hour
duty with the Army at the Aberdeen Proving Ground. Mr.
Munhall, my assistant manager of the company, carried
on with about one girl and an assistant in the laboratory.
Mr. Clyne: Thank you, that’s all.
* * * * *
42a Henry P. White, Cross Examination
(70) Afternoon Session (2 o'clock, p.m.)
The Court: Proceed, please.
The Clerk: Marked for identification Exhibits 4 and 5.
(The documents above-referred to were marked
Petitioners’ Exhibits Nos. 4 and 5.)
By Mr. Clyne:
Q. I am handing you herewith that which has been
marked Petitioners’ Exhibit 4, and ask you to state if you
know what that is? A. This is the income tax return for
the year 1948.
Q. I am handing you herewith that which has been
marked Petitioners’ Exhibit 5, and ask you to state if you
know what that is? A. That is my income tax return for
the year 1949.
Q. You filed a joint return, yourself and your wife,
for those years? A. Yes, sir.
Mr. Clyne: May I offer them in evidence at this time,
your Honor?
Mr. Kennedy: No objection.
The Court: They will be received and marked in
evidence, two exhibits.
(The documents above-referred to were received
in evidence and marked Petitioners’ Exhibits Nos. 4
and 5.)
(71) Mr. Kennedy: Your Honor, may I request to
have them replaced with photostats.
The Clerk: Exhibits 4 and 5 admitted in evidence.
Cross Examination by Mr. Kennedy.
Q. Mr. White, were you born in Cleveland? A. Yes,
sir; I was.
Q. What year was that? A. 1909.
Q. And then I understand you testified you went to,
was it Cornell? A. I did go to Cornell, sir.
Q. Of what university did you graduate? A. I gradu-
ated from Cornell University.
—
Henry P. White, Cross Examination 43a
Q. Oh, I see. What year was that you graduated?
A. I graduated in 1934.
Q. What did you do when you got out of college,
right after you got out of college? A. I sold Ford auto-
mobiles.
Q. Was that your sole source of your income at that
time? A. Sir?
Q. Was that the sole source of your income? A. No,
sir; it was not.
Q. Would you mind stating what other income you
had in (72) 1934? A. Yes, I received assistance from my
family, because back in those days, of course, of the Na-
tional Recovery Act, I was working at a minimum wage
of $17.50 a week. I was married and I did require further
assistance.
Mr. Kennedy: Excuse me a minute, Mr. White.
Your Honor, with those exhibits there is some ex-
traneous material which I will not need photostated. I
believe I hadn't removed them as yet. I think those were
the revenue agent's report or something like that.
The Court: Well, I think the record ought to be
clarified on that. They were offered and received as they
are here.
Mr. Kennedy: I don’t mind that they go in that way.
I thought maybe Mr. Clyne may have some objection.
Mr. Clyne: Counsel and I agreed on them prior to
the time they were offered and I am confident that they
won't be—
The Court: Well, in order to avoid any misunder-
standing, I think they ought to be removed in advance.
There ought to be some statement on the record of what
should be marked.
Mr. Kennedy: I will make the statement on the rec-
ord that Exhibits 4 and 5 and the photostats which will
replace Exhibits 4 and 5 will consist of the original income
tax returns for 1948 and 1949 by the Petitioners and all
attachments (73) that were filed with the returns.
The Court: Does that identify it sufficiently?
RIEL SEA BOLL OA OLE ATE
44a Henry P. White, Cross Examination
Mr. Kennedy: I think so, your Honor.
The Court: Very well.
Q. Mr. White, you were stating that you received
assistance from the family after you got out of Cornell
University? A. Yes, sir; I had a very meager personal
investment return.
Q. I see. What did you do next after selling Ford
automobiles in 1934? A. I was employed by the Central
National Bank of the City of Cleveland.
Q. That was in 1935? A. That was prior—that was,
I believe, no, sir—yes, sir; it was just the beginning of
1935, I believe it was March 4th.
Q. Did you have any outside income of your own
during that period, that is, exclusive of any support you
may have received from the family? A. Only that which
I had when I left college. I don’t recall the exact amount,
but it was a very, very meager amount. I don’t imagine
it amounted to more than $300 or $400 a year.
Q. In 1937, what did you do? A. In 1937 I was-—-
what did I do?
(74) Q. Yes, what was your employment in 1937?
A. In 1937, sir, I had already established my laboratory
and was giving full time to that and the management of
my affairs.
Q. Did you have any outside income during that year?
A. Yes, sir; I did. I was the recipient under a trusteeship
of my late grandmother.
Q. Would you state what the principal amount of
the trust fund was? A. Well, I would have to consult my
records. It was considerable, however.
Q. Would two million dollars be approximately the
sum? A. Well, I would have to consult my records on it.
Frankly, you see, I was just the recipient under a trust at
that particular time and did not have complete control
of it or anything.
Q. Did you receive all of the income from this trust?
A. No, sir; I did not. I only received half of it.
Q. Half the income? A. Yes, sir.
.
_—
Henry P. White, Cross Examination 45a
Q. Who received the other half? A. It was held in
trust.
Q. For yourself? A. It was held in trust for me
until I should be 40 years of age.
(75) Q. Oh, I see, but you couldn’t state whether two
million dollars was the principal amount of this trust or
not? A. Well, the exact figures escape me now, because
it was depreciated so much by the inheritance tax and so
on.
Q. Well, at that time, could you just give me a round
figure estimate? A. I think the whole estate probably ran
around two million, seven. I wish I did have the figures
at hand, because I might be misstating myself.
Q. Well, you can guess, you don’t need to be accurate.
Was two million dollars about the figure, more or less?
A. About that, I should say.
Q. And you became the recipient of this trust in
what year? A. In 1935 I received, let’s see, I’m trying to
remember my dates, now. I received a fixed amount of
income under the trust and at the age of 30 I received half
of the estate and the other half was held in trust.
Q. But it was after the establishment of this trust
and after you had become the recipient of this trust that
you established this laboratory? A. No, it was not. The
idea was conceived in the winter of 1935. I was given
leave to utilize this old disused stable which had no
tenant at 90th and Euclid and it was there, despite the
fact that I had very limited resources, (76) I decided to
start this laboratory.
Q. Were you working at the bank at this time, also?
A. Yes, sir; I was.
Q. When did you work at the laboratory during this
year 1935? A. It wasn’t until practically into the spring
of 1936, I cleaned out the stable and started reconstruc-
tion there for our purposes.
Q. Were you working at that time? A. No, sir; I
was not. I’ve forgotten the exact day, but it was around
the first day of January, 1936, I terminated my employ-
ment with the Central National Bank.
ane
eT Se hee eS Oe oe
CORPSE rr OS
46a Henry P. White, Cross Examination
Q. At that time were you a recipient under the trust?
A. No, sir; I don’t believe I was. I’m trying to remember
the exact date there. Really, it wasn’t until 1939 that I
became a recipient to any large extent under this trust
income.
Q. Were you getting income from this trust in 1936?
A. Oh, yes.
Q. Do you remember the approximate amount of the
income? A. No, I can’t. It’s a long time ago.
Q. Would it be in five figures, six figures, $5,000,
$9,000? A. It was in the neighborhood of that, I can’t
recall, $8,000 to $10,000, something like that.
* * * % %
(81) Q. I see, and my records show another fee of
$8 for velocity test of cartridges. You were always doing
that? A. Yes, we are.
Q. And the last item is for $625 for the fees for writ-
ing articles for the National Rifle Association. Do you
recall that? A. Yes, sir; I do. I don’t recall exactly what
articles they covered, but we were doing work for them,
that was in 1948.
Q. 1948? A. 1948. We had already installed this
universal mount and pressure gun setup that we have
today. We are the only independent laboratory in the
United States that has such equipment, and that is one of
the many reasons that the National Rifle Association came
to us to prepare this information (82) for publication for
their very large membership.
Q. I see. Now, that’s all the items I have, and I be-
lieve that adds up to the $730.10 that is reported on the
return. Can you think of any other income you had in
1948 in that business? A. If it’s not there, I can’t think
of it; no, sir.
Q. Now, what did you and what did Mr. Munhall do
at this laboratory during the year? I have only one, two,
three, four occasions on which services were rendered for
rather minimal amounts. I wondered just what you did do
during the year. A. As I stated before in my testimony,
Henry P. White, Cross Examination fia
we were busy analyzing, codifying, cataloging, trying to
get all this tremendous load of work that had accumulated
during the war. As I said before, Mr. Munhall, and I
believe there was just one girl we had then, more or less
kept the candle burning in the window just while I was
gone during the war, and there was a tremendous amount
of material that came out of the war that we should know
about, I mean that we were expected to know about. I
dislike the word expert im connection with my activities,
because I have seen a great many people who called them-
selves experts and I wonder about myself when any-
thing tough comes up; but anyway, we had this tremen-
dous load of work measuring, taking cartridges apart,
analyzing the powder, weighing the powders, classifying
these cards (83) so that with simple ammunition, a person
could bring in a cartridge and from our records could
practically pick the thing right out. It was a tremendous
undertaking.
We have in the neighborhood at the present time, of
course it is always growing, not so much now that the war
is over, 13 or 14 thousand rounds of different rifle, pistol,
and shot gun ammunition, all of different types, different
characteristics, and things that have never been pulled to-
gether before, so that, well, the thing to say it’s like a very
large comprehensive library that you go to and get what
you want.
Q. Was that the principal activity of you and Mr.
Munhall during the year 1948, research cataloging? A.
Yes, sir; I would say that it was primarily that.
Q. How much did you pay Mr. Munhall? Was he an
employee of your company? A. Yes, sir. I don’t recall the
amount I paid him. I believe in your papers there you
probably have the bulk amount of the salaries, but I don’t
have—
Q. Yes, the tax return for 1948, Exhibit 5, indicates
a payroll of $15,462.53. To whom was that money dis-
tributed? A. That was distributed to Mr. Munhall who
had just become my associate, who was at one time at
Aberdeen Proving Ground during the war. He became my
associate after the war and became one of my mechanics.
oF CRY
OROGAYSIS LNT
OT el ih oh en ok
48a Henry P. White, Cross Examination
I believe Mr. Wieman (84) was working for us at that
time. Then we had an additional girl that acted as a
general typist and secretary to Mr. Munhall. Of course, we
had our porter that we had. I believe there was a change
after the war, but the same job was held. I believe that
was the group, outside of my own secretary. She was re-
placed after the war, but it was the same job.
Q. And most of those people to whom this $15,000
odd was paid were helping you and Mr. Munhall working
on the principal job you had in 1948 of research and
cataloging? A. No, they weren’t. My secretary was al-
most entirely devoted to the managing of my personal
affairs. As you can imagine, as you stated there, it was
rather a large amount and it requires considerable book-
keeping, as you can tell from that return there. Her time
was devoted almost entirely to me, Some of Mr. Munhall’s
time was devoted to the conduct of my affairs.
Q. When you say your affairs, you mean— A. The
estate.
Q. The estate? A. Yes, sir.
Q. How much of your time wes spent on the preser-
vation and conservation of your estate at that time? A. I
would say offhand that almost half my time was devoted
to it.
Q. I see. But the work that Mr. Munhall and the
secretary (85) did, with respect to the— A. Yes, sir; as
I have stated.
Q. —was with respect principally to the work of
identification with the cataloging and research? A. That
was almost entirely it with the exception, of course, of
building new equipment and resources and setting up new
techniques. You can call that research or you can call it
building, I don’t know which term you like, but it was
confined within the company.
Q. After you had gotten this information on car-
tridges, you have published, haven’t you, volumes? A.
Yes, we have. Actually, one book wasn’t published until
1950 or copyrighted until 1950, but that one, I believe, you
de
Henry P. White, Cross Examination 49a
have there, I believe, I am familiar with it, is one of our
publications.
The Clerk: Offered for identification Exhibit “A.”
(Thereupon, the document above referred to was
marked Respondent’s Exhibit A.)
Q. I hand you, Mr. White, what has been marked for
identification Respondent’s Exhibit “A,” and I ask you if
you can identify this as one of the volumes that you were
preparing for cartridge identification? A. Yes, sir.
Q. How many volumes have you completed up to
date? A. Just two, sir.
(86) Q. Just two? A. Yes.
Q. I see. This volume indicates that it was copy-
righted in 1948. Apparently the work was done on this
prior to 1948, or was it done during 1948? A. Frankly, my
memory is a little poor about that, because as I recall, the
publisher had the manuscript. Whether he copyrighted it
at the time—as I recall, the book was not actually pub-
lished until the latter part of 1948 and it was due at the
beginning of 1948. Of course, we probably did some proof
reading in the latter part of 1948.
Mr. Kennedy: We offer this in evidence.
Mr. Clyne: No objection, your Honor.
The Court: It will be received and marked in evi-
dence.
The Clerk: Exhibit “A” admitted.
(Thereupon, the document above referred to was
received in evidence and marked Respondent’s Ex-
hibit A.)
The Clerk: Offer for identification Exhibit “B.”
(Thereupon, the document above referred to was
marked Respondent’s Exhibit B.)
Q. I hand you what has been marked for identifica-
tion as Exhibit B, and I ask you if you can identify it as
Volume 2 of the work on cartridge identification? A. Yes,
this is Volume 2.
ee :
Sa Henry P. White, Cross Examination
(87) Q. And this volume was copyrighted in 1950,
was it? A. Evidently it was, yes, but my memory is very
vague on these copyrights, because sometimes they take
them out in the name of the author, and sometimes in the
name of the publisher.
Q. In these instances, it was taken out in the name
of the author? A. I am not sure about that. We have some
records that show the first volume was taken out in our
name. Whether that one was or not, I don’t know.
Q. The exhibit will show. A. Yes.
Mr. Kennedy: I offer in evidence Exhibit “B.”
Mr. Clyne: No objection.
The Court: It will be received and marked in evi-
dence.
(Thereupon, the document above referred to was
received in evidence and marked Respondent’s Ex-
hibit B.)
Q. Those books, Exhibits A and B, are the only two
volumes you did in that period? A. In that rough period;
yes, sir. We had, of course, the magazine articles, as I say,
reprinted there by your knee from the NRA which are a
large part reprints of the articles we supplied the National
Rifle Association.
(88) The Clerk: Offered for identification Exhibit C.
(Thereupon, the document referred to was
marked Respondent’s Exhibit C.)
Q. I hand you what has been marked for identifica-
tion Exhibit C, and ask you if you will tell us what it is?
A. I want to be sure that this is the one—the first part of
this has to do with loading tools, of which we did not have
—yes, beginning about here are reprints of the articles
that we contributed a very, very large part to from the
information which was contributed by some of the per-
sonnel of the National Rifle Association themselves and
for the most part, as you will see at the foot of the page
here, our company is given credit for the information in
Henry P. White, Cross Examination 5la
this particular article, and they follow through the book, as
I recall.
Q. I see. Can you recall what compensation you re-
ceived for the articles appearing in this volume? A. I
cannot do that, because I don’t believe the period covered
by that income statement is the period covered by that
of the book,
Q. I see. A. And I do recall this, that we did have
several conferences and where our fees were constantly
increased by the NRA.
Q. Now, in 1949, Mr. White, would you say that the
(89) items making up your gross income were about the
same as they were in 1948, that is, an occasional fee for
ballistics test, some fees for writing articles, and the like?
A. As far as I recall; however, I believe, don’t you have
the statement there, you can read it to me and I can tell
you just exactly what the things were, I hope.
Q. Well, the total amount reported on your income
tax return was $2,502.26, of which as you can recall, and
correct me if Iam wrong— A. I'll do my best.
Q. $825 was from the National Rifle Association for
fees for writing articles; $500 from Infantry Journal, Inc.,
various royalties on a book entitled, “Center Fire, Metallic
Pistol or Revolver Cartridges.” A. That was Volume 1,
for your information.
Q. Ohio Edison Company for trial fees, $300. A.
That was a damage suit in which we did a good deal of
analytic work for them.
Q. About how long did it take you to do that analytic
work? A. I have no recollection of it. Mr. Munhall
handled the field work on that and I helped on the labora-
tory work. I was out of town during part of that time.
Q. Would you say it took a month’s time? A. Well,
no, I wouldn’t say that—as far as working (90) time?
Q. Yes, working time. A. No, I wouldn’t say it took a
month’s working time. The whole investigation, I believe,
occupied some six weeks or something like that. As I say,
I was out of town at the time and I don’t recall the exact
et Se
at
Qeeess scr ear gree
52a Henry P. White, Cross Examination
circumstances of when he first took the case and made his
first investigation.
Q. Did you have a cost system for the laboratory back
in these years, 1948 and 1949? A. A very rough one. We
have done a much better job since we have moved to
Maryland on that particular situation.
Q. As you can recall then and whatever you do re-
call of that cost system, would you say most of the ex-
penses, including payroll, were attributable to these items
that I have read to you as being the source of your income,
such as the tests and so on? A. No, sir; I wouldn’t say that
at all, because harping back to this idea of getting this
tremendous mass of information into a workable, pliable,
usable shape, required a tremendous amount of effort.
Therefore, some of our time and effort went into doing
that and naturally that is not reflected or would not be
reflected in these fees we charged.
Q. Would you say most of your time and most of the
time of your employees had to do with the work that is
not reflected in the time you put in? (91) A. Yes, I would
say the majority of the time was.
Q. Now, Mr. White, there has been some reference
in the record to a letter you received from the National
Rifle Association, but that letter is not in evidence. I be-
lieve you do have in evidence the statement by you that
you received an offer from the American Rifle Association
to buy your plant down in Maryland, is that correct? A.
Yes, sir.
Q. Was that really an offer or was it something that
might be considered less than an offer? A. Well, that’s
pretty hard to say, being in the nebulous stage like that,
it’s quite obvious that the NRA needs the facilities like we
have. Whether or not they would be able to, or foresee
that they could pay the price necessary to purchase our
plant is something I cannot answer.
Q. They never made the offer in terms of money, did
they? A. No, they did not.
Q. Is the American Rifle Association a non-profit
organization? A. Yes, sir; it is.
Henry P. White, Cross Examination 53a
Q. Where is— A. They have 300,000 members.
% * % * *
(93) Q. Have you ever done any work for arms’
manufacturers? A. I’m just trying to recall now. We have
on occasion, you could call it, done work for them, because,
of course, arms embraces the entire field. We have done
work for arms’ manufacturers.
Q. For whom? A. I believe we did some work for the
Remington Arms Company in connection with the finding
of some information which was evidently lost from their
files for the purposes of their advertising department.
Now, I may be wrong about the name of the company, but
that was the nature of the work, as I recall.
Q. Well, they usually don’t have any reason to call
upon your organization? A. No, sir; they have not, gen-
erally speaking, however, (94) we are still trying to sell
them.
Q. You testified that the Treasury Department paid
you on occasion for evaluating certain illegal weapons that
had been seized. A. That’s right.
Q. Do you recall how much the Treasury Department
paid you? A. A nominal amount, I believe, between $2
and $5 per person and they had to have either two or three
persons’ signatures on that particular declaration.
Q. About how many times did that occur in the years
that we have, 1948 and 1949? A. I don’t know. It would
be on your record there, I think. You could find it.
Q. In any event, you received only a nominal fee?
A. Oh, yes.
Q. The catalogue of cartridge identification that you
were viewing this morning, I don’t believe it was put in
evidence, which you testified you were the author of and
which you said was used by the FBI, do you recall how
much the FBI paid you or the publisher of the book for the
volume? A. I believe the price was $50.
Q. I see. About how many of those were sold in the
United States? A. I don’t have any records available.
There weren't (95) a great many of them.
ces
we.
vere eyrvore
eer eS LAR Terese
—— ——
Sda Henry P. White, Cross Examination
Q. What was your share of the $50 price? A. I be-
lieve our production price on that volume, as I recall, like-
wise was in the neighborhood of $18 to $20. If you will
examine the volume, it is not printed in the usual way, but
is made from blueprints and it was the only way we could
get the thing out and get it done and keep it confidential at
the same time.
Q. About how long did it take to compile the material
that is in that volume and have it in suitable form for
publishing? A. I don’t recall.
Q. Could you give us any estimate on it, on the time?
A. No, I couldn’t, because I was not at the laboratory dur-
ing all the period of preparation. I don’t know how much
time was actually spent on it. Naturally, there were lag
times on it. The information, as far as the base marks, is
in one part of our catalogue and the information about
the manufacturers is for the most part in another part and
those two had to be correlated and cross checked, and I
don’t recall how long it took.
Q. I see, because you weren’t around when it was
being done? A. I wasn’t there during all the preparation.
Q. How about Exhibits A and B, they are the volumes
1 and (96) 2 of the cartridge identification series, about
how long did it take to compile the information in those
volumes and if you recall, what years was it compiled in?
A. Well, the actual pulling together, I would rather im-
agine, of the volume 1 would be off and on during the year
1947 and the early part of 1948. The same would be true
of 1949 and part of 1950 for the volume 2.
Q. I see. A. Unfortunately, I don’t have any exact
records to that effect.
Q. Do you recall how many volumes or how many
issues of those two volumes have been sold in the United
States? A. I don’t have any record on that.
Q. Are you still receiving royalties from them? A.
Yes.
Q. In other words, they,are being sold today? A. Oh.
yes, they are being sold, but they are not a fast-selling
item.
A a A MORITA SONNE LOO I A Oe hn eae ear
Henry P. White, Re-Direct Examination 55a
Mr. Kennedy: No, I understand. I have no further
questions.
Re-Drrect ExaMInaTION by Mr. Clyne.
Q. Directing your attention to the work that you did
for the Ohio Edison, which was referred to as being in-
come in 1949, which you stated that you had received $300,
how (97) much actual time on an hourly basis was spent
in the determination of the opinion that you gave Ohio
Edison? A. I do not know, sir.
Q. Was that done by someone other than yourself?
A. Yes, sir.
Q. The work that was done in the preparation of ar-
ticles for any and all magazines and all books that were
published, was the information that was contained in those
articles and books, by that statement, from your library
of books, cartridges, shells, and engineering data that you
had accumulated over a period of years up until now? A.
Yes, sir.
Q. Was the cataloging of that information and the
engineering detail that you accumulated in connection with
guns and ammunition from the time your laboratory was
established until now, is it now a usable tool by which
your ability to produce and sell your opinions is predi-
cated? A. Yes, it is, so far as I understand your question,
it is a very usable tool and it was not usable before sir.
* % * * %
(98) Q. In the inquiries that you have made or in the
conduct of your business, is it the fact, state the fact as to
whether or not either you or any part of your organiza-
tion act as a sales organization and go out and solicit busi-
ness? A. Yes, sir.
Q. Who does that soliciting, if anyone? A. I do solicit-
ing. Mr. Munhall does soliciting, and one of the other
associates does some soliciting from time to time. Mr.
Munhall and I are the mainstay of our selling force.
Q. What does Mr. Munhall do, Mr. White? A. Mr.
Munhall has the title of manager of the H. P. White Labora-
tories.
+ 9 SP Ore Ean reap rT
ba Henry P. White, Re-Direct Examination
Q. What does he do in connection with the sales
activities, who does he call on, if he does? A. He calls on
the arms plants, both the technical men and the sales—the
people that generate the sales policy, in order to see
whether or not our services may be available and to ce-
ment relationships between ourselves and the larger com-
panies, to keep abreast of what is going on in our field
and, of course, to see if we cannot be of assistance to their
sales departments where they do not have or care to enter
into a program to make their particular advertising more
pleasing to the customer and make the production better.
(99) Q. Who do you call on, the same or other people,
other users than that? A. Generally speaking, I call on
the same people myself. Quite frequently, we do it to-
gether.
Q. Who, if anyone, calls on Governmental Agencies?
A. We both do, sir.
Q. Who procured the contract that you are now
working on? A. Well, I can say that we both did, because
we were both on the same trip in which we were—the
wheels were set in motion for our present existing contract.
Q. Tell me in connection with your present contract
that you have with the Government, does that involve
both guns and ammunition? A. Yes, sir.
Q. How many rounds of Government-owned ammuni-
tion do you now have in storage for use in connection with
your contract with the Government, how many pieces do
you have? A. We have in the neighborhood of between
40 and 50,000 rounds of automatic cannon ammunition.
Q. Automatic cannon ammunition? A. Yes, sir.
Q. What size shell is that? A. Twenty millimeter.
Q. Would you have been able to have handled 20
millimeter (100) shells in your laboratory in Cleveland?
A. No, sir.
Q. Your present range makes that particular type of
testing possible? A. Yes, sir.
Q. How high a caliber of shell can you now handle in
your present laboratory in Bel Air? A. We can handle
between 20 and 30 millimeter.
Henry P. White, Re-Direct Examination Sia
Q. And what was the highest grade ammunition or
highest size ammunition that you could handle with your
laboratory when your laboratory was in Cleveland? A.
We could only safely handle 45 caliber rifle ammunition.
Q. Have the number of customers that you have now
served in the year of 1953 up until now increased over,
let’s say, last year or the year before? A. No, sir; they
have not increased.
Q. Has the volume of business you have done with
each customer increased? A. Yes, sir; it has.
Q. And you say that you will on the basis of the pres-
ent curve of your production operate at a profit next year?
A. Yes, sir.
Q. Would you say from your best judgment of the
work (101) that you now have on the books for the year
of 1953 whether or not you will operate at a profit in the
laboratory? A. I am not concerned enough with my im-
mediate operating figures to be able to tell you that, sir.
I believe that we are going to be coming fairly close.
Q. By the way, who is the head of the organization
known as the National Rifle Association? A. Oh, my, I
don't know the name of the president of the National Rifle
Association. He is a civilian who is, of course, the head
of the Board of Directors. The executive secretary who,
of course, is usually the most active managerial position,
is the executive secretary, and that is ex-Major General
Edson of the Marine Corps.
Q. And is he the man with whom you have had your
conversations? A. I have had some conversations with
General Edson, but most of my conversations have been
with Major General Hatcher, retired, who was a Major
General in the Ordnance Department and who served in
both wars with considerable distinction in our general field
of design and manufacture in the Ordnance Department.
Q. Have your conversations with him related to your
use of your laboratory as part of their membership offer-
ing, was that what was part of his plan? A. That was a
conversation I have discussed with (102) various people
on the technical staff and General Edson, who you must
o™ aren oe
ene a
—
58a Henry P. White, Re-Cross Examination
realize is in the chief managerial position, the possibility
of the use of our facilities for furthering their programs.
Q. Have you had similar suggestions from any maga-
zine authorities that serve the sporting field? A. Yes, sir;
we are in the process of negotiation with another—I would
not say another, with a sporting magazine. Of course, it
supports itself by its advertisers and by the people that
purchase the magazine. It is not an association. It is a
public publication.
Q. And they are also attempting to contract with you
for engineering? A. For our services.
Mr. Clyne: Thank you, that is all.
Mr. Kennedy: Just a few more questions, Mr. White.
The Witness: Surely.
Re-Cross ExaMINATION by Mr. Kennedy.
Q. That contract you have with the Government, is
that with the Navy Department? A. Yes.
Q. What price did you quote the Navy Department
for the full job? A. I don’t recall.
(103) Q. You did give them a figure? A. Yes, we did.
Q. Well, could you give me some idea of what that
figure was? A. Well, I would say that it goes into about
five figures.
Q. And would you say around $12,000, $13,000,
something like that? A. I think it is in excess of that.
Q. $20,000? A. Well, you see, it’s one of those things
that you quote, your first quote is a definite quote, a bid,
and then, of course, they expand your contract and it’s
cost plus from there on.
Q. How does the situation stand today, what is your
bid today? A. I don’t know the final figure on it so far,
because they keep on amplifying it and I hope they keep
on doing it, incidentally.
Q. Would you say $25,000? A. Somewhere in there.
Q. And your profit would be 6 per cent on that?
A. Seven per cent.
Q. Seven per cent? A. Yes, sir.
* * * * *
ESERIES PEELE LDS LNG ILE! ELBA SELLE IGN DALS LT was —
| —
Examination by the Court 59a
The Court: * * * (107) In the meantime, I have
some questions.
Mr. White, perhaps you better look at Exhibits 3 and
4, your income tax returns for those years, and 4 and 5.
Now, the years that are involved here are 1948 and 1949.
The Witness: Yes, sir.
The Court: And you have now before you Exhibits
4 and 5 which are your income tax returns for those years.
The Witness: Yes, sir, I signed them.
The Court: I wish you would turn to the schedule
which shows the detail of the items of operating expense
in those years for the business that you operated under
the name of the White Ordnance Company.
The Witness: Yes, sir. Do you want me to turn to
both of them, sir, or just one?
| The Court: One may be enough, or you can turn to
) them both. Now, can you tell me, the biggest figure there
is for salaries, is that correct?
The Witness: Yes, sir; it is.
The Court: Can you tell me what portion of the
salary, the total salary paid to your secretary and Mr.
Munhall is included in that figure?
The Witness: There is none of my secretary’s salary
included in this laboratory payroll figure. Half of Mr.
Munhall’s salary is reflected in this figure here. The rest
of the people in the laboratory are included in that (108)
particular payroll figure.
The Court: Well, perhaps I misunderstood you, but
I thought I understood you to say that at the laboratory
you employed certain people?
The Witness: Yes, sir.
The Court: And you included someone, I thought,
that you designated as your secretary.
The Witness: Yes, sir; I did.
The Court: But even though you employ and you
say you employ her in the laboratory, no part of her
salary is included in that figure?
The Witness: No, sir.
The Court: Is that correct?
60a Examination by the Court
The Witness: That’s correct, sir.
The Court: How did you arrive at the figure of one
half for Mr. Munhall?
The Witness: That was pretty much arbitrary, sir,
from what little survey we could make of the situation.
Such a thing, as I say, we did not have exact time clock
schedules or anything like that, but from our appraisal of
the situation, that seems to be the proper proportion to ap-
portion to his period of time on my personal affairs or on
the laboratory, whichever way you want to look at it.
The Court: Outside of those two employees, were
there any that worked on anything except work for the
laboratory?
The Witness: No, sir; there were none.
(109) The Court: All of the salary, except Mr. Mun-
hall’s was for employees working exclusively on the lab-
oratory?
The Witness: Yes, sir; anything they did for anybody
else was always billed out and came back to the laboratory.
The Court: Well, if it came back to the laboratory, it
would be reflected in your gross income, wouldn’t it?
The Witness: Yes, sir, that’s right.
The Court: Was any of that reflected in any of the
figures Mr. Kennedy read to you for 1948 and 1949?
The Witness: Gee, I’m sorry, sir. I’m afraid I got lost
on that. I am not trying to obstruct anything here, but—
The Court: I understood you to say if any of the other
employees did work for anybody else or spent their time
doing work for anybody other than the laboratory, I as-
sume that includes your own personal affairs?
The Witness: May I give you an instance, sir? As you
probably know, where expert testimony is required, for
say a civil case or even in a criminal case, the expert tes-
tifier must do the investigation, the investigative work
himself in order to be able to swear to it. Consequently
when he receives a check, it is made out to him personally.
Those checks were endorsed back to the company, is what
I was trying to get across.
SPORE I OL! ——
——
Examination by the Court 6la
The Court: In other ‘words, some of the sums that you
(110) have referred to as being received in 1948 and 1949
may have been received by you in that fashion, is that cor-
rect?
The Witness: Generally speaking, they were not re-
ceived by me, but by Mr. Munhall, who, as I stated pre-
viously, has done a good deal of the legal work and the legal
testifying for the firm.
The Court: But I mean, if I understand what you said
just a minute ago, that if Mr. Munhall received that money
in the first instance, he turned it over to you?
The Witness: No, he turned it over to the firm.
The Court: Well, there isn’t any firm, is there?
The Witness: No, but we try to keep the books sepa-
rate.
The Court: That may be, but you are the White Ord-
nance Company, aren’t you?
The Witness: Yes, sir.
The Court: So if Mr. Munhall received any fees in the
way you have described, he turned them over to you?
The Witness: Yes, sir.
The Court: Well, some of that may be represented in
the figures that Mr. Kennedy read you for receipts during
1948 and 1949?
The Witness: Yes, sir; it would be all represented
there.
The Court: I mean, some was paid to you in that (111)
fashion?
The Witness: Yes, sir.
The Court: Now, will you look at that schedule again
there and I would like to ask you about the matter of ad-
vertising.
The Witness: Yes, sir.
The Court: Do you have any examples of the adver-
tising that you did during 1948 and 1949 for which that
money was spent?
The Witness: This is an all-inclusive term. We do do
display advertising, sir. It represents the money expended
4
62a Examination by the Court
by going to see the different manufacturers and people
that might be interested in our services.
The Court: You mean, in other words, like traveling
?
The Witness: Yes, sir; like traveling expenses.
Naturally, occasionally we come to a town and we will have
to entertain to a small extent, nothing elaborate or any-
thing like that, but you can buy a lunch for somebody.
The Court: But this does include that item also?
The Witness: Yes.
The Court: You might take somebody to lunch?
The Witness: Yes.
The Court: Does it include some traveling expense?
The Witness: Yes, sir.
(112) The Court: That you might undertake?
The Witness: Yes, sir.
The Court: There is no breakdown of that figure in
the schedule.
The Witness: There is no breakdown.
The Court: I wish you would look at the other also
and tell me if there is any breakdown in that.
The Witness: No, sir; there is not.
The Court: Now,-another of the items there is for de-
preciation.
The Witness: Yes, sir.
The Court: Depreciation, on what was that?
The Witness: On all the capital property, I assume,
sir. As I say, I am not too good at these figures, but I as-
sume that was what it was for.
The Court: Now, in those years, where was your plant
located?
The Witness: At 90th Street and Euclid.
The Court: In Cleveland?
The Witness: Yes, sir; in Cleveland.
The Court: Did that figure also include, I mean to say,
what you call capital items on which you took depreciation,
that also includes your equipment, your machines?
The Witness: Yes, sir; anything that is capital.
|
Examination by the Court 63a
The Court: Now, for this year, that is, 1953, you (113)
have testified that you expect to approach breaking even,
as I understand it, is that right?
The Witness: Yes.
The Court: During this year, where is your plant lo-
cated?
The Witness: In Bel Air, Maryland, or in the vicinity
of Bel Air, Maryland.
The Court: Is that the plant that was shown on, I
think it is Exhibit 1, the photographs?
The Witness: Yes, sir.
The Court: Did you include in your estimate expecta-
tion that you will almost break even and items for depre-
ciation on that property?
The Witness: No, sir; I don’t have those figures.
The Court: No, but I mean, when you said to Mr.
Clyne that you expected to come near to breaking even
this year and being in the black next year, did you include
an item for depreciation on that plant and its contents?
The Witness: I believe so. Frankly, I’m sorry to say,
it’s embarrassing to be so dumb about these figures on my
business, but I do assume they include depreciation figures.
I asked the people how they were doing on the operation
and they tell me that we are coming along in pretty good
shape.
The Court: Do you have an estimate how much capital
(114) investment is involved in that plant that is shown
on that exhibit?
The Witness: Yes, sir; I should say in the neighbor-
hood of $300,000.
The Court: Do you include in your estimating—by
the way, that is Exhibit A I was just referring to.
Do you include in computing your probable profit or
loss for 1953 and 1954 any amount for interest in the in-
vestment of that plant?
The Witness: No, sir; I don’t believe we do.
The Court: And do you include in your total figures,
either for 1948 or 1949, for your estimates, any amount
whatever for the value of your own services?
Ga Henry P. White, Re-Direct Examination
The Witness: No, sir; that was not reflected in these
statements.
The Court: I have no further questions.
Mr. Clyne: May I have the Court’s permission to ask
one?
The Court: Yes.
Furtuer Re-Direct Examination by Mr. Clyne.
Q. From the time you were in high school up until
now, what sort of hobby have you enjoyed throughout the
years? A. Well, I’m primarily a sailboat hobbyist.
Q. That has been your pleasure from college up until
(115) now? A. Yes, sir.
Mr. Clyne: Thank you. That's all.
Mr. Kennedy: No further questions.
Mr. Clyne: No further questions.
The Court: All right, Mr. White.
(Witness excused.)
* * * * *
Findings of Fact 65a
FINDINGS OF FACT AND OPINION OF THE
TAX COURT (23 T. C. No. 12).
(Filed October 19, 1954.)
A ballistics laboratory, owned by petitioner, and
operated consistently at a loss held, on facts, not a
business carried on for profit and the excess of ex-
penditures over income not deductible as either a loss
or business expense under section 23, Internal Rev-
enue Code of 1939.
Respondent determined deficiencies in income taxes of
petitioners for the calendar years 1948 and 1949 in the
amounts of $1,088.51 and $10,014.28, respectively. Peti-
tioners, in addition to resisting the deficiency determina-
tions, claim that, if they prevail, there has been an overpay-
ment of income taxes for the calendar year 1948 due to cer-
tain conceded arithmetical errors.
The question presented is whether petitioners were
entitled to deduct under section 23 expenditures claimed
to be ordinary and necessary expenses of a trade or busi-
ness.
FINDINGS OF FACT.
[1]* Petitioners, Henry P. White and Nancy A.
White, husband and wife, filed joint income tax returns for
the calendar years 1948 and 1949 with the collector of
internal revenue for the eighteenth district of Ohio.
[2] On March 19, 1951, petitioners filed with re-
spondent a claim for a refund of $7,671.05 for the year
ending December 31, 1948.
[3] Petitioner Henry P. White, hereinafter sometimes
called petitioner, was graduated from Cornell University
in 1934 with a degree in engineering and was licensed as a
mechanical engineer by the states of Ohio and Maryland.
He sold automobiles for the remainder of 1934 and was em-
ployed by the Central National Bank of Cleveland in 1935.
* Bracketed numbers supplied by counsel.
a
66a Findings of Fact
He also became the sole beneficiary in 1935 under a trust
of approximately $2,000,000.
[4] In 1936, petitioner opened a ballistics laboratory
in Cleveland, Ohio, specializing in guns and ammunition
research, and in such work employed the services of sub-
ordinates. Until petitioner went into the armed service this
laboratory had continued to function under his direct su-
pervision. During petitioner’s absence, his first assistant
operated the laboratory. When petitioner returned from
the service, he again took over direction and management
of the laboratory and it has continued to function under
his supervision through the years in question. This re-
search laboratory is now located at Bel Air, Maryland, in
proximity to Army and Navy Proving Grounds.
[5] Operation of the laboratory included the prepara-
tion and publication in 1948 of a book entitled “Centerfire
Metric Pistol and Revolver Cartridges,” and research pre-
paratory to the publication in 1950 of a second book en-
titled “Centerfire American and British Pistol and Re-
volver Cartridges,” but income realized from sales of the
first book during the years in controversy did not exceed
$500. No attempt was made in the years in issue to segre-
gate those expenditures properly attributable to producing
the copyrighted publications and laboratory research li-
brary data, although it appears that most of the endeavors
of petitioner and his associates were connected with the
named activities.
[6] During the years involved, approximately one-
half of petitioner’s time was devoted to the preservation
and conservation of his estate. His secretary expended all
of her time upon petitioner’s personal affairs. The general
manager of the laboratory spent half of his time on the
personal affairs of petitioner. An arbitrary method of allo-
cating the latter’s salary according to the time spent on
petitioner’s personal affairs and the laboratory endeavors
was used.
[7] Petitioners’ joint income tax returns for 1948 and
1949 reported the following income and expense items in
a ocean di —
-—
Findings of Fact
the operation of the ballistics laboratory resulting in net
losses which were disallowed by respondent:
[8] 1948
Income
Expenses:
Payro $15,462.53
Office Supplies 1,900.49
Shop & Laboratory Supplies 1,376.96
Advertising 1,976.61
Social Security 133.38
Unemployment Compensation 66.70
Workmen’s Compensation 73.01
Personal Property Tax 618.64
Insurance (44) 181.62
Telephone 458.94
Burglar Alarm 447.30
Utilities 680.79
Cleaning 81.82
Repairs 137.07
Post Office Box 6.00
Auto Expense 288.72
Police Commissions 42.00
Miscellaneous 242.51
Legal 35.00
Surety Bonds 53.00
Depreciation 2,039.71
$26,302.80
Less: Administration
of investments 6,947.88
$ 730.10
19,354.92
Net Loss
$18,624.82
Cha Findings of Fact
[9] 1949
Income $ 2,502.26
Expenses:
Payro $19,104.61
Shop and Laboratory Supplies 851.51
Office Supplies 1,846.03
Advertising 1,668.50
Payroll Taxes 254.42
Workmen’s Compensation 95.55
Fire Insurance (4) 202.65
Other Insurance 124.50
Burglar Alarm 453.60
Telephone 477.51
Light, Power and Water 774.09
Cleaning 107.01
Post Office Box Rent 6.00
Auto Expense 297.32
Repairs 256.67
Miscellaneous 208.23
Police Commissions 43.40
Depreciation 2,342.06
$29,113.66
Less: Administration
of investments 8,090.38 21,023.28
Net Loss $18,521.02
[10] Of the $730.10 income received from the opera-
tion of the ballistics laboratory in the year 1948, $625 was
acquired in fees for writing articles for the National Rifle
Association.
[11] The ballistics laboratory was of some service
and benefit to a limited number of persons and organiza-
tions, but it was not capable of producing income in suf-
ficient amount to offset the usual expenses. Petitioner has
never made a profit from the operation of the ballistics
laboratory; it has incurred losses in every one of the 17
i ciliteai nel aaa
Opinion 69a
years from its inception in 1936 to the time of trial in 1953.
For example, petitioners’ joint income tax return for the
calendar year 1951 revealed that they suffered a $33,369
loss.
[12] Subsequent to the taxable years in question pe-
titioner made a capital investment of $300,000 for the con-
struction of a new ballistics laboratory in Maryland. In
determining whether his new enterprise would be profit-
able petitioner has figured no amount for interest on this
capital investment, nor has he figured any amount for the
value of his own services for the years 1953 and 1954.
Petitioner had no real expectation of any net income for
years subsequent to those in issue.
[13] Petitioner did not operate the ballistics labora-
tory as a business or with the intent of making a profit
during the taxable years 1948 and 1949.
[14] The expenditures claimed were neither ordinary
and necessary expenses of carrying on a trade or business
nor losses within the meaning of section 23, Internal Rev-
enue Code of 1939.
OPINION.
Opper, Judge: Whether the amounts presently in con-
troversy are claimed as “losses” or as ordinary and neces-
sary business expenses, the existence of a profit motive on
the part of petitioner is requisite.’ The principle which we
are now required to apply has been aptly stated by Judge
Learned Hand sitting as a District Judge in Thacher v.
Lowe (S. D., N. Y.), 288 F. 994, 995:
* * * It does seem to me that if a man does not ex-
pect to make any gain or profit * * * it cannot be
1“* ® * An occupation or employment will not be excluded
from the classification of business merely because it actually re-
sults in loss instead of profit; but it is essential that livelihood or
eels bo ot least eno of tho puspesne for whkh Oe am t
is 7. v. (C. A., D. C.), 23 F. 2d 975,
- See also Chaloner v. Helvering (C. A., D. C.), 69 F. 2d 571,
ow i a a tad
70a Opinion
said to be a business for profit, and while I should be
the last to say that the making of a profit was not in
itself a pleasure, I hope I should also be one of those to
agree there were other pleasures than making a
profit. * * * it does make a difference whether the
occupation which gives him pleasure can honestly be
said to be carried on for profit. Unless you can find
that element it is not within the statute, * * *.
Nor do we think it necessary that “pleasure” be
equated with idleness or that financial return is the indis-
pensable equivalent of public benefit. The gratification
derived from an occupation worth doing, possibly beneficial
to others and probably requiring long hours of arduous
labor, must still not be confused with an intention to re-
turn a profit. We find no evidence here that petitioner did,
or could in good faith, have had such an intention during
the years in dispute.
Petitioner’s independent wealth, the long history of
losses,” and the entire disproportion of receipts to expendi-
tures’ may not singly and individually be conclusive. But
when considered together and coupled with the necessity
of overcoming the burden of proof imposed upon peti-
tioner, they lead us to the conclusion that as of the tax
years before us, anyone of his intelligence, education and
ability, with knowledge of the facts, could not in good faith
reasonably have expected or intended to operate his bal-
listics laboratory profitably.
2“ ® * Jt would be specious to say that a vain hope that on
some remote day a profit may result is enough to give the opera-
tion * * * the character of trade or business. It is far different
from saying, as the Board and the courts have in other cases, that
the fact of a loss does not deprive a business enterprise of its
= as a business. * * *” Louise Cheney, 22 B. T. A. 672,
74.
3“* * * But if the gross receipts from an enterprise are
practically negligible in comparison with expenditures over a
long period of time it may be a compelling inference that the tax-
payer’s real motives were those of personal pleasure as distinct
from a business venture, * * *” Cecil v. Commissioner (C. A. 4),
100 F. 2d 896, 899.
OIE
LONE OOOO ELE AT GON ROS EL TITS 1 ere Na ; |
Fae a on
-
Opinion Tla
Such statements as the following from petitioners’
brief are thus wide of the mark: “We * * * know the
value of research and the many benefits that result from
it.” It may readily be granted that petitioner’s work has
been useful and perhaps unique; that he has rendered
service not only to industrial producers but to local and
even Federal government.
But when over a period of some 12 years the ex-
penses of operation always exceeded the financial return,
when in the period here involved the proportion of cost to
income averages in the neighborhood of 12 to 1, when we
know from the record that even in a subsequent year there
was not only no profit but even an increased loss, it strains
the credulity to conclude that the purpose of these activities
was to earn money as contrasted with performing a public
service.
Paraphrasing Louise Cheney, 22 B. T. A. 672, 674, pe-
titioner’s intention was not to run a business or make a
profit but to obtain the personal gratification of fulfilling a
recognized need. Petitioner is to be commended for the de-
votion of his time and effort in a worth-while endeavor.
But this does not supply the missing element of profit mo-
tive.
This disposition renders unnecessary any considera-
tion of respondent’s alternative contention that the ex-
penses must, in any event, be disallowed because to some
undisclosed extent they resulted in the acquisition of
capital assets.
Decision will be entered
for the respondent.
72a Decision; Statute
DECISION OF THE TAX COURT.
(Entered Oct. 19, 1954.)
Pursuant to the determination of the Court, as set
forth in its Findings of Fact and Opinion, filed October 19,
1954, it is
ORDERED AND Decipep: That there are deficiencies in
income tax of $1,088.51 and $10,014.28 for the calendar
years 1948 and 1949, respectively.
Enter:
CLARENCE V. OpPER,
Judge.
APPENDIX B.
Internal Revenue Code, 1939, Sec. 23.
Depuctions From Gross INCOME.
In computing net income there shall be allowed as
deductions:
(Sec. 23(a))
(a) Expenses—
(1) Trade or business expenses—
(A) In General—All the ordinary and necessary ex-
penses paid or incurred during the taxable year in carry-
ing on any trade or business, including a reasonable allow- —
ance for salaries or other compensation for personal —
services actually rendered; traveling expenses (including —
the entire amount expended for meals and lodging) while
away from home in the pursuit of a trade or business; —
and rentals or other payments required to be made as a ~
condition to the continued use or possession, for the pur-
poses of the trade or business, of property to which the —
taxpayer has not taken or is not taking title or in which
he has no equity.
STATEMENT OF QUESTION INVOLVED
Was the ballistics laboratory owned by the taxpayer,
Henry P. White, operated during the taxable years with
the intention of making a profit so as to enable the tax-
payers to deduct expenditures in excess of income in-
curred in its operation as ordinary and necessary ex-
penses of a trade or business or as losses incurred in a
transaction entered into for profit under Section 23 of
the Internal Revenue Code of 1939?
The Tax Court answered ‘“‘no.”’
The Commissioner contends that the answer should
be **no.”’
(1)
INDEX
Statement of Question Involved ............... ...2205. I
RE tacit cin dAWeRDEReHukhvedsnnectanasesuads Cin badBan Ill
Counterstatement of Facts ....................4. opakeeih 1
Argument:
Was the ballistics laboratory owned by the taxpayer,
Henry P. White, operated during the taxable years
with the intention of making a profit so as to enable
the taxpayers to deduct expenditures in excess of in-
come incurred in its operation as ordinary and neces-
sary expenses of a trade or business or as losses in-
curred in a transaction entered into for profit under
Section 23 of the Internal Revenue Code of 1939?
The Tax Court answered “no”. The Commissioner
contends that the answer should be “no” .......... 4
DEE EE. isakecsdrinsvrhieestidctcrbevsses aenekhe 11
Appendix B:
Testimony of Calvin H. Goddard.................++. 1b
Testimony of E. W. Kronbach............. ispnicens> 2b
Testimony of Henry P. White..................20.- 3b
CITATIONS
Cases:
Cheney v. Commissioner, 22 B.T.A. 672...........+.. 5
Coffey v. Commissioner, 141 F. 2d 204................ 5
Ewing v. Commissioner, 213 F. 2d 438.............. 5
Helvering v. Nat. Grocery Co., 304 US. 282........ 5
Morton v. Commissioner, 174 F. 2d 302.............. 5
Thacher v. Lowe, 288 Fed. 994..........++0seeeeeee. 5
United States v. Gypsum Co., 333 US. 364, rehearing
PN Ee. ae GE ci ehasdadsdcvdenricphcenserver 5
Wright-Bernet v. Commissioner, 172 F. 2d 343........ 5
Statute:
Internal Revenue Code of 1939, Sec. 23 (26 USC.
SE OR TO, BP veh cd news chisecstodcecosecosiios 11
(ut)
In the United States Court of Appeals
for the Sixth Circuit
No. 12, 445
Henry P. Wuire, anp Estate or Nancy A. Wuite,
DECEASED, T. Leo SULLIVAN, ADMINISTRATOR, C. T. A.,
PETITIONERS “a
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
ON PETITION FOR REVIEW OF THE DECISION OF THE TAX
COURT OF THE UNITED STATES
BRIEF FOR THE RESPONDENT AND APPENDICES
COUNTER STATEMENT OF FACTS
The taxpayers in their statement of facts (Br. 1-9)
have ignored the findings of fact made by the Tax Court
and have instead attempted to summarize the testimony
presented to the Tax Court. For this reason, the Com-
missioner deems it necessary to submit a counterstate-
ment of the facts.
The Tax Court made findings of fact (R. 65a-69a) '
which may be summarized as follows:
In 1934, Henry P. White was graduated from Cornell
University with a degree in engineering and was li-
Record references are to the Appendix of taxpayers’ brief.
(1)
2
censed as a mechanical engineer by the States of Ohio
and Maryland. He sold automobiles for the remainder
of 1934 and was employed by a bank in Cleveland in
1935. In 1935 he became the beneficiary under a trust
of approximately two million dollars. (R. 65a-66a.)
In 1936, he opened a ballistics laboratory in Cleve-
land, Ohio, specializing in guns and ammunition re-
search. He employed others to assist him in such work.
The laboratory was operated under White’s direct
supervision until he went into the armed forces; while
he was absent from the laboratory and in the armed
forces, the laboratory was operated under the supervi-
sion of his first assistant. On his return from the serv-
ice, White again assumed the direction and management
of the laboratory and it has continued under his super-
vision through the years in question. The laboratory is
now located at Bel Air, Maryland, in proximity to Army
and Navy Proving Grounds. (R. 66a.)
Operation of the laboratory included research and
preparation for the publication of two books concerning
pistol and revolver cartridges. One of these books was
published in 1948 and the other in 1950; income from
the sales of the first book did not exceed $500 during the
taxable years. No attempt was made during the taxa-
ble years, to segregate expenditure*properly attributa-
ble to producing the copyrighted publications and lab-
oratory research library data, although most of the en-
deavors of White and his associates were connected
with such activities. (R. 66a.)
White devoted about one-half of his time to the pres-
ervation and conservation of his estate during 1948 and
1949. The general manager of the laboratory also spent
one-half of his time on White’s personal affairs. White
—
3
used an arbitrary method of allocating the general man-
ager’s salary according to the time which was spent on
the laboratory affairs and White’s personal affairs.
(R. 66a.)
The joint income tax returns filed by White and his
wife reported income and expenses ca to the op-
eration of the laboratory as follows rv
1948 1949
Income $ 730.10 $ 2,502.26
Expenses $19,354.92 $21,023.28
(less administration of
investments
Net Loss $18,624.82 $18,521.02
Of the $730.10 income received from the operation of
the laboratory in 1948, $625 was acquired in fees for
writing articles for the National Rifle Association.
(R. 68a.)
The laboratory served and benefited a limited number
of persons and organizations, but was not capable of
producing income in amounts sufficient to offset the
usual expenses. White has never made a profit from
the operation of the laboratory; rather its operations
have resulted in losses in each of the 17 years from its
inception in 1936 to the time of the trial in 1953. The
joint income tax return filed by White and his wife for
the year 1951 disclosed a loss of $33,369 from the lab-
oratory operations. (R. 68a-69a.)
Subsequent to the taxable years White made an in-
vestment of $300,000 for the construction of a new lab-
oratory in Maryland. In determining whether his new
enterprise would be profitable, he did not take into ac-
count any amount for interest on that investment or for
4
the value of his own services. He had no real expecta-
tion of any net income for years subsequent to the tax-
able years. (R. 69a.)
White did not operate the laboratory as a business or
with the intention of making a profit during the years
1948 and 1949. The claimed expenditures were neither
ordinary and necessary expenses of carrying on a trade
or business nor losses within the meaning of Section 24
of the Internal Revenue Code of 1939. (R. 69a.)
These findings of fact were filed together with the Tax
Court’s opinion on October 19, 1954. (R. 65a.) The Tax
Court’s decision was entered on the same day. (R. 72a.)
ARGUMENT
Was the Ballistics Laboratory Owned by the Taxpayer, Henry
P. White, Operated During the Taxable Years With the In-
tention of Making a Profit So as to Enable the Taxpayers to
Deduct Expenditures in Excess of Income Incurred in Its
Operation as Ordinary and Necessary Expenses of Trade
Or Business Or as Losses Incurred in a Transaction Entered
The taxpayers are claiming deductions from gross
income for amounts purportedly representing expendi-
tures incurred in the operation of the ballistics labora-
tory owned by Henry P. White, during the taxable
years, 1948 and 1949. There is no dispute that the
amounts claimed were actually spent by the taxpayers.
The only question is whether these amounts represented
expenses incurred by the taxpayers in the operation of a
trade or business or whether they can be considered to
represent losses incurred in a transaction entered into
by the taxpayers for profit within the meaning of Sec-
—
5
tion 23 of the Internal Revenue Code of 1939 ( Appen-
dix A, infra).
It is clear that the criterion for determining whether
or not an expenditure was incurred in the operation of
a trade or business is that the enterprise must have been
entered into with the intention of profiting from its op-
eration. Helvering vy. Nat. Grocery Co., 304 U.S. 282,
289, fn. 5; Thacher v. Lowe, 288 Fed. 994 (S.D.N.Y.);
Cf. Ewing vy. Commissioner, 213 F.2d 438 (C.A. 2d).
It is also clear that an incidental expectation or hope of
profit from the enterprise is not sufficient to cause the
undertaking to be considered a ‘‘trade or business”’
within the meaning of the statute. Cheney v. Commis-
sioner, 22 B.T.A. 672. Rather, the intention to profit
must be the primary and dominant purpose of the tax-
payers’ endeavor. Coffey v. Commissioner, 141 F.2d 204
(C.A. 5th), and Ewing v. Commissioner, supra. Whether
the requisite profit intention is present id a question of
fact which is primarily a determination to be made by
the lower court to which Congress has given the respon-
sibility of making findings of fact. Morton v. Commis-
sioner, 174 F.2d 302, 303 (C_A. 2d), certiorari denied,
338 U.S. 828. And such findings are not to be disturbed
by an appellate court unless they are found by the ap-
pellate court to be clearly erroneous.’ United States v.
Gypsum Co., 333 U.S. 364, 395, rehearing denied, 333
U.S. 869; Morton v. Commissioner, supra, and Wright-
Bernet v. Commissioner, 172 F.2d 343 (C.A. 6th). The
instant case must be considered with these principles
in mind.
The Tax Court found that Henry P. White *‘did not
operate the ballistics laboratory as a business or with
2 See also Section 7482(a) of the Internal Revenue Code of 1954.
6
the intent of making a profit during the taxable years
1948 and 1949.”” (R. 69a.) The taxpayers’ contention
is that the only evidence supporting that finding by the
Tax Court is that Henry P. White is a wealthy man
and that the business had never made a profit. (Br. 11.)
The Commissioner, however, submits that the evidence
is compelling to support the Tax Court’s finding and
that its decision must therefore be affirmed.
Henry P. White commenced the operation of his bal-
listies laboratory in 1936, shortly after he had inherited
a substantial amount of money. Although he had re-
ceived a degree in engineering in 1934 and was licensed
as a mechanical engineer in two states, he apparently
did not utilize this training during the remainder of
1934 and 1935. (R. 42a-45a.) The record is devoid of
any evidence that White had any knowledge of or train-
ing in the field of ballistics. Previous to receiving his
inheritance, White had been working as an automobile
salesman and later in a bank. (R. 44a.) His earnings
were small and he had been receiving financial assist-
ance from his family. (R. 43a.) From these facts, it
may reasonably be inferred, that once his financial prob-
lems were eliminated (as a result of his inheritance)
and it was no longer necessary for him to concern him-
self with the tasks of supporting himself and his family
he turned his attention to a subject which interested
him for reasons entirely apart from economic motiva-
tions. His entrance into the field of ballistics and am-
munition research can be thus explained.
Moreover, the manner in which the laboratory was
operated from its inception to the time of the Tax Court
hearing is evidence of the fact that the laboratory was
not being operated as a true business or with the inten-
7
tion of making a profit. This is graphically illustrated
by the testimony of E. W. Kronbach, one of the taxpay-
ers’ witnesses. Mr. Kronbach testified that for work
performed for his company by the laboratory in 1940
or 1941, although time and labor were involved, his com-
pany was billed only for the instruments installed. He
further testified that his company paid ‘‘comparatively
little’? for the work and that the laboratory ‘‘didn’t
make much money on it.’’* (Appendix B, infra.) Fur-
thermore, a large part of the time of certain of the lab-
oratory ‘‘employees’’ was spent handling the personal
affairs of Mr. White. Indeed, during the taxable years,
White himself used one-half of his time in managing
his personal matters. (R. 48a, 59a-60a.) And no rec-
ords were maintained showing the exact amount of time
that was used by White’s chief laboratory assistant in
attending to White’s personal affairs. (R. 60a.) But
rather, the arbitrary amount of one-half of the salary
paid to this assistant was allocated to laboratory work
for the purposes of the claimed deductions. (R. 60a.)
Arbitrary allocations of expenses to the personal affairs
and claimed ‘‘business’’ affairs of Mr. White indicate
that it was not of extreme importance to White whether
a profit was in fact being realized from the operation of
the laboratory.‘
3 Similarly, only a “nominal amount” was received for work
performed by the laboratory for the Treasury Department.
(R. 53a.)
*It should also be noted that no deductions for depreciation on
the property occupied by the laboratory was claimed by the tax-
payer for the taxable years. (Exs. 4 and 5). On brief (p. 24) the
taxpayers state that the Commissioner should not complain be-
cause claimed deductions were kept to a minimum. The taxpayers
fail to realize, however, that this merely furnishes another indica-
tion that White was unconcerned with whether the laboratory was
8
Although the financial success of the enterprise is not
the only factor to be considered in determining whether
a profit motive existed, it is certainly most relevant
whether losses were being realized and whether a rea-
sonable man could conduct the undertaking with a real
expectation of profit. Thacher v. Lowe, supra; Morton
y. Commissioner, supra. The evidence on this point, too,
sustains the Tax Court’s finding that the laboratory op-
eration was not a ‘“‘trade or business’”’ within the mean-
ing of Section 23 of the Code. From 1936, when the lab-
oratory was founded, and continuing for each year until
1953, when the hearing before the Tax Court was held,
the laboratory’s expenses exceeded its income and a loss
was realized. (R. 68a-69a.) Moreover, the amounts of
the losses rather than decreasing, as the laboratory be-
came older, increased. (Testimony of White, Appen-
dix B, infra.) The claimed amounts for deductions for
the taxable years, 1948 and 1949, were $19,354.92 and
$21,023.28, respectively, as contrasted with gross income
in those years in the amounts of $730.10 and $2,502.26,
respectively. (R. 67a-68a.) And the loss from the oper-
ation of the laboratory in 1951 was $33,369.98. (Testi-
mony of White, Appendix B, infra.)
In view of such a long history of increasing losses
from 1936 until the taxable years, it would require more
{han optimism to engage, in good faith, in the operation
of such an enterprise during the taxable years with the
intention of making a profit.
In disallowing the claimed deductions, the Commis-
producing a profit or loss. Such lack of interest in the financial
success of the laboratory is also shown by White’s statement that
he was “not concerned enough with my immediate operating
figures” to be able to predict whether the laboratory would operate
at a profit for the year 1953. (R. 57a.)
=—_—
9
sioner has not made a determination that the laboratory
operated by White has not served a useful purpose. On
the contrary, all of the evidence in the record points to
the fact that the undertaking was a meritorious one and
satisfied a need existing in the arms and ammunition
making industries. But this case cannot turn on the rel-
ative merits or demerits of the taxpayers’ undertaking.
The sole question is whether the Tax Court’s finding
that the undertaking was not a trade or business or a
transaction entered into for profit has support in the
evidence. And in this connection it must be remembered
that the burden of proof in the Tax Court was on the
taxpayers. That they did not satisfy this burden is clear
from the record and was so stated by the court below.
(R. 70a.)
It is true that Mr. White testified that he intended
to make a profit from the operation of his laboratory
when he first engaged in the undertaking. (R. 40a, 41a.)
And the taxpayers contend that this testimony is uncon-
tradicted and that no question as to credibility is raised.
The Commissioner presented no witnesses in the Tax
Court, but he did cross-examine the taxpayers’ wit-
nesses. And the assertion of the deficiency itself chal-
lenges White’s self-serving statement that he estab-
lished the laboratory with the intention of making a
profit.” In the circumstances, the Tax Court, as the
trier of fact, was entitled not to believe and apparently
did not believe the statements of Mr. White. Cf. Hel-
vering v. Nat. Grocery Co., supra, p. 295.
5 In this connection it should be noted that White did not testify
that he operated the laboratory with the intent to make a profit
during the taxable years.
ay
10
As shown above, there is ample evidence in the record
to support the Tax Court’s findings of fact. The burden
of proving that the laboratory was operated during the
taxable years with the intent to make a profit was on
the taxpayers. The evidence introduced by the taxpay-
ers was not sufficient to overcome the presumption of
correctness which attached to the Commissioner’s de-
termination that the laboratory was not operated with
a profit motive and the decision of the Tax Court must,
therefore, be affirmed.
Respectfully submitted,
H. Brian HOLLAND,
Assistant Attorney General.
Euuis N. SLACK,
Marvin W. WEINSTEIN,
Special Assistants to the
Attorney General.
11
APPENDIX A
Internal Revenue Code of 1939:
Sec. 23. Depuctions rrom Gross Income.
In computing net income there shall be allowed as deduc-
tions:
(a) [as amended by Sec. 121, Revenue Act of 1942,
c. 619, 56 Stat. 798] Expenses.—
(1) Trade or business expenses.—
(e) Losses by Individuals.—In the case of an indi-
vidual, losses sustained during the taxable year and not
compensated for by insurance or otherwise—
(1) if incurred in trade or business; or
(2) if incurred in any transaction entered into for
profit, though not connected with the trade or busi-
ness; or
(26 U.S.C. 1952 ed., Sec. 23.)
TESTIMONY OF CALVIN H. GODDARD 1b
Testimony of Calvin H. Goddard
(Tr. 20]
Cross EXAMINATION
By Mr. Kennepy:
[Tr. 22-23]
Q. Did you have as much investment in your laboratory
as Mr. White has in his?
A. No, I should say I have personally about $10,000 and
what White had, I don’t know. He was the fellow into whose
good will I bought.
Q. Did you need a laboratory as extensive as Mr. White’s
in order to do the work that the Bureau of Forensic Bal-
listies was set up to do?
A. No, we didn’t, because you see, White’s work is in a
different field, a collateral field. White’s resources put him
in a position to do all this computation work in criminal
cases, which he does not do.
I have frequently been requested since I went back on
active duty many years ago to take criminal cases and I will
not, because I feel that my military status would make it
very embarrassing for me to go into such an enterprise and
on many occasions I have tried to get the White Company
to accept a criminal case and they won’t do it.
They have the resources, they have a comparison micro-
scope and have the photographie equipment, but they pre-
fer to do developmental work in the field of small arms, de-
veloping a new type of cartridge or improving on an old
type or testing a new type of weapon to determine whether
the pressures developed by the load are within normal lim-
its and safe limits and so forth.
The work, as I say, although collateral, is not identical,
and in the erime laboratory it doesn’t need all the equip-
ment that they have.
2b TESTIMONY OF E. W. KRONBACH
Testimony of E. W. Kronbach
(Tr. 40]
Cross EXAMINATION
By Mr. Kennepy:
Q. Mr. Kronbach, when was this work done for you by
White, what year was that, if you know?
A. As I recall, it was late 1940 or early 1941, we put this
in.
Q. Do you recall what you paid Mr. White for the service?
A. We paid comparatively little. I don’t recall what the
instrument was, but I know this, that they came over every
time we called them to re-adjust or make a change here and
there. I think a good deal of that time, I think none of that
time was paid for. I know they never billed us and the only
thing they billed us was the original instruments, I think.
We bought one in 1941 and one a short time later.
Q. Do you know whether those instruments were billed to
you, to the White Company, or what?
A. I wouldn’t know that. I know they didn’t make much
money on it.
Mr. Kenwepy: That’s all.
Mr. Ciyxe: That’s all, thank you very much.
TESTIMONY OF HENRY P. WHITE 3b
Testimony of Henry P. White
{Tr. 71]
Cross EXAMINATION
By Mr. Kennepy:
[Tr. 76-81}
Q. In 1938 you actually received the corpus of this?
A. In 1939.
Q. Half or the full corpus?
A. Half the corpus.
Q. Mr. White, you have never made a profit, have you,
from this operation of the laboratory?
A. No, sir.
Q. Do you have any recollection of the amounts of re-
sources that you had between 1938 and the present time?
A. No, sir; I don’t have my figures at hand, I’m sorry.
Q. You do have such figures?
A. I do not have them.
Q. I mean, you do have them someplace?
A. Well, I rather imagine back in some file box, we've
got them.
Q. Would about $5,000 be the amount of loss in 193817
A. I’m sorry, I can’t answer that, I really don’t have any
recollection of it.
Q. In the years 1948 and 1949, the tax returns, Exhibits
4 and 5, your losses were approximately $18,000?
A. Yes, sir, between $18,000 and eighteen-five.
Q. For each year, were your losses earlier than 1948 less
or greater than that amount, that is, 1947 and earlier years?
A. My recollection was that they were less, but how much
less they were, I don’t recall.
Q. According to Exhibit 5, which is your joint income tax
return of you and your wife for the year 1948, you had gross
income from the operation of the H. P. White Company of
oe
4b TESTIMONY OF HENRY P. WHITE
$730.10. Now, do you recall from what source or sources
that $730.10 was made up?
A. I’m just trying to remember back now.
Q. Well, perhaps—let me again refresh your recol-
lection—
A. Thank y ”.
Q. My recoris show here that from the Franklin Stone
Ware Velocity Test Cartridges you received $24, do you
recall that?
A. Vaguely.
Q. Would you know how much time was spent by that by
either you or Mr. Munhall or some other employee of yours
that made the test? If you don’t remember specifically from
your experience, would you be able to recall how much—
A. As I recall that particular job, I rather imagine it
took up in the neighborhood of three hours to perform that
particular test.
Q. I also have a record you received $25 from the Liberty
Mutual Insurance Company for the preparation of a report
whether a rifle was faulty and caused an injury to a hunter,
that was in 1948.
A. No, I don’t recall. They frequently call us and ask our
opinion on that as to the probability of their liability under
some particular insurance clause or something like that.
Q. Would that require the service of either you or Mr.
Munhall? :
A. Yes, it would.
Q. About how long would it take you to undertake such
a test?
A. Well, that particular item there, I don’t imagine
probably wasn’t even testing. I don’t recall a particular
item itself. It most likely was a conference.
Q. A conference which might have taken an hour or less?
A. Probably met for a couple hours or something like
that.
Q. It says, ‘Preparation of report.’’ You wrote a report
on it?
A. Well, I don’t recall it.
Q. Well, how long do your reports on such a matter take?
=
TESTIMONY OF HENRY P. WHITE 5b
A. Well, that kind of question is like asking how long is
the tail of a dog? You don’t know.
Q. It was only $25, you know.
A. Well, it evidently was.
Q. Then you received $14.90 from the sale of surplus cart-
ridges. I don’t suppose you would remember that.
A. Well, we would have quite a surplus of collectible ma-
terial that we were endeavoring to realize money on, so that
we wouldn’t have to care for them. They were of no fur-
ther use to us, so we sold them.
Q. Then my records show that you received $7 from the
Cleveland Skating Club for preparation of special blanks
for some ice review.
. Yes, I recall that.
How long did it take to prepare the blanks?
. About half an hour.
Did you prepare them?
No.
Did Mr. Munhall prepare them?
. Either him or one of the assistants.
. I see. You have $10 for consultation on whether your
services would be valuable to a murder trial. Do you recall
that?
A. No, I don’t. Mr. Munhall took most of the legal phase
of the work. I have qualified, of course, before the State of
Ohio, as an expert in the line of mechanical engineering. He
has handled most of the identification work.
Q. Then I have a fee here that says, $16.20 for sale of
surplus books You were selling books on occasions?
Q. Yes, I have. I have mentioned earlier in the testimony
we acquired a tremendous mass of material immediately
following the war, one of the largest bulk of it, some 5 tons
of it, as a matter of fact, including books and cartridges and
pertinent mechanical portions of guns, we purchased from
a chap on the West Coast and we catalogued that stuff and
we incorporated into our reference collection what was
needed and what was not needed we disposed of as the oc-
casion would permit. We didn’t catalogue it for general
sale, because frankly, it would bave been too long, a tedious
O>Oororear
6b TESTIMONY OF HENRY P. WHITE
job, but when some people of associated interest would come
in and there was a surplus, we would say, ‘*Take what you
want,’’ and it was that kind of a transaction.
(Tr. 91-93]
Q. What is its source of income?
A. Primarily the source of ineome is from its annual sub-
scriptions. I believe it’s $5 a year now. Maybe it’s four,
but I believe it’s $5 a year now. Of course, they have a good
many life members and they are the only ones entitled to a
vote at the annual meeting. It is very similar to other na-
tional organizations encompassing other lines of endeavor.
Q. That $5 fee, what cost does that defray for the Ameri-
can Rifle Association, does that entitle the member to a
magazine?
A. It entitles him to a magazine, it entitles him to a con-
sideration of questions he might send to their technical
department regarding his weapons or ammunition or closely
allied items. It also entitles him to a certain amount of
information about gun and game laws and so on, some of
the finer interpretations thereof. It entitles him to partici-
pate in a great many of their actual target matches and it
also entitles him, and this is a vague benefit and one which
I am not entirely in sympathy with, through the Director of
Civilian Marksmanship of the United States Army, mem-
bers, and only members alone of the National Rifle Associa-
tion may purchase through the Director of Civilian Marks-
manship rifles and components for the purpose of promot-
ing marksmanship in the United States.
Q. $5 is used for the purpose of defraying costs of mem-
bership?
A. Yes.
Q. You don’t know if they have any trust funds set up?
A. They have several trust funds set up.
Q. Without going into the details, do you happen to know
the amount of the total assets of the association?
A. No, I don’t know that, I know the director of that
association.
——
TESTIMONY OF HENRY P. WHITE 7b
Q. Do you know whether they would be able to purchase
your organization and pay back your investment?
A. Well, as I say, I don’t know. There has been no
amount mentioned.
. . . . .
(Tr. 102]
RECROSS-EXAMIN ATION.
By Mr. Kewwepy:
. . . . .
(Tr. 104-106]
Q. Do you recall what your returns were in 1950 from the
operation of the H. P. White Company?
A. No, sir; I do not.
Q. Would about $20,000 be close to that loss?
A. I don’t recall the figures. The figures are entirely
out of my head.
Q. But you did have a loss?
A. Yes, sir; we did.
Q. About the same as the amount you lost in 1948 and
19497
A. I don’t recall.
Q. Do you recall what your loss was in 1951?
A. No, I don’t.
The Crerx: Offered for identification Exhibit D.
(Thereupon, the document above referred to was marked
Respondent's Exhibit D.)
Q. I show you, Mr. White, what has been marked as Re-
spondent’s Exhibit D, and I ask you if you can identify that.
Is that your joint income tax return for the year 1951?
A. Yes, sir.
Q. I call your attention to Schedule C on Page 2 of that
return, entitled, ‘‘Profit or Loss from Business or Profes-
sion,’’ and I ask you to read the resultant figure.
A. Where is that?
Q. Schedule C.
SSSR PLOT VET IC
8b TESTIMONY OF HENRY P. WHITE
A. Net profit or loss, Line 4, less Line 5, close parentheses
$33,369.98.
Q. That was loss for that year, is that correct?
A. Lassume that it was, I am not too very good at figures.
Q. Well, that figure of $33,000 is in parentheses.
A. May I ask, may I consult my counsel about this? I
don’t know what losses you are talking about, sir.
Mr. Ciyne: May I take it?
The Witness: Yes, surely.
Mr. Ciyne: There are your losses, that $33,000 figure.
Will you state your loss for counsel?
The Witness: $33,369.98.
By Mr. Kennepy:
Q. That was the loss on the operation of the H. P. White
Company for the year 1951, was it not?
A. Yes, that was incurred due to the fact that we were
getting ready to move to Bel Air.
Q. Just one more question, Mr. White. You have testi-
fied you are doing better this year, in 19531
A. Yes.
Q. You do have records, don’t you?
A. Yes, sir.
Q. You don’t wish to put any of those records in to show
how much better you are doing?
A. No, I don’t. I believe we have taken in about twice
as much as we did last year, but I think we have done maybe
even a little bit better than that, I don’t know.
Q. Do you have those records with you?
A. No, I do not.
Q. Didn’t you think they might be helpful in this trial?
A. Well, frankly, to be frank with you, I do deal with
mathematies all the time, but I’m afraid these tax matters
rather confuse me. Perhaps I should have brought them.
If I should have and haven’t, I’m awfully sorry.
WU. S. GOVERNMENT PRINTING OFFICE. 1958 s3eee8 i208
APR 9 1956
B. WILLEY, Clerk
In the Supreme Court of the United States
OCTOBER TERM, 1955.
No. . > ae
HENRY P. WHITE, and
ESTATE OF NANCY A. WHITE, deceased,
T. LEO SULLIVAN, ADMINISTRATOR, c.t.a.,
Petitioners,
Vv .
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
PETITION FOR WRIT OF CERTIORARI
To the United States Court of Appeals
For the Sixth Circuit.
Tuomas V. Koyxkxka,
Frep D. Kipper,
1144 Union Commerce Building,
Cleveland 14, Ohio,
Epcar S. Byers,
701 N. B. C. Building,
Cleveland 14, Ohio,
Counsel for Petitioners.
April 5, 1956.
_ ——_—__——
THE GATES LEGAL PUBLISHING CO., CLEVELAND, OhIO-——-MAIN 1-5647
eka ne FMRI WELT IY A OIL AIOE,
TABLE OF CONTENTS.
PeTITION FoR Writ oF CERTIORARI ---------------
TI iin nc scecinin ene hind caiianeiiaealicaes
(i) Nature of the Laboratory --_----------
(ii) What the Laboratory Does ------------
—Basis of Decision Below __------------------
REASONS FOR ALLOWANCE OF WRIT ---------------
I. Srxtn Circurr Is ms Conriict WitH ANOTHER
1. Sixth Circuit Imported Profit Test from Statute
Not Controlling Here ---------------------
2. Sixth Circuit’s Construction Gives Statute
Alarming Turn —-.--~--------------------
—(a) Decision, Not Statute, Lets Commis-
sioner Bar Venture if He Thinks it Is
TO CI an enn
I i ccnecscwcsdeninintneetodoaninanatenannniee
3. Sixth Circuit’s Decision Is Hostile to Reading
Given Statute in Other Circuits ______------
Il. Tuts Court’s Decisions LEAvE QuesTION UN-
I ee Ac a Le CSO
LE CEDAR Sie LLL ANC POET re
OL i ED il EG
APPENDIX:
Findings of Fact and Opinion of Tax Court ------ 21
Opinion of the United States Court of Appeals for
the Sixth Circuit _.__-------------------- 28
Judgment of the United States Court of Appeals
for the Sixth Circuit _-_.------------------ 30
Order of the United States Court of Appeals for
the Sixth Circuit Denying Rehearing -------- 30
TABLE OF AUTHORITIES.
Cases.
Cecil v. Commissioner (4C. A., 1939), 100 F. 2d 896__ 15
Cecil, Cornelia (1938), 37 B. T. A. 904 ----------- 15
Deputy v. du Pont (1940), 308 U. S. a 17, 18
Doggett v. Burnet (App. D. C., 1933), 65 F. 2d 191__ 8, 9
Ewing v. Commissioner (2 C. A., 19
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