American Propeller & Manufacturing Co. v. United States

Background

A contractor sued the United States in the Court of Claims to recover a remaining balance under certain contracts. The government filed a counterclaim for a 1918 income and excess-profits tax assessed June 14, 1924. The court below found the government owed the contractor $119,413.04, and that the contractor’s tax liability was $82,701.29; the lower court added interest and entered judgment that left the contractor owing about $21,895.89. The government had relied on the Revenue Act of 1918, section 250(e), in arguing for interest, and earlier pressed for a higher monthly rate but abandoned that position on appeal.

Reasoning

The Supreme Court limited review to whether interest could be allowed to the government. Section 250(e) permits interest only after the tax is unpaid and "for ten days after notice and demand by the collector." The Court examined the findings, pleadings, and the lower court’s memorandum and concluded the record did not show the required notice-and-demand by the collector. The opinion emphasized that allowing many years of interest when the government was actually indebted to the contractor in 1924 would be grossly inequitable. Because the statutory precondition for interest was not satisfied, the Court held the allowance of interest was improper.

Real world impact

The Court reversed and directed judgment for the contractor without allowance of interest on the government’s counterclaim. The ruling removes the long-accrued interest award and rests the outcome on the statutory notice-and-demand requirement, not on equitable power to uphold an unfair result.