- 3 -
deductible. If the $940,000 represents a payment of
double damages, a further genuine issue of fact exists
as to whether the parties intended the payment to
compensate the government for its losses (deductible)
or to punish or deter Talley and Stencel
(nondeductible). [Citation omitted.]
Id.
FINDINGS OF FACT
Stencel Aero Engineering Corp. (Stencel), a wholly owned
subsidiary of Talley Industries, Inc. (Talley or petitioner),
manufactured ejection seats for military aircraft. During the
early 1980's, Stencel's primary customer was the U.S. Department
of the Navy (Navy Department). Stencel's work for the Navy
Department involved both the production of ejection seats and
research and development projects (R&D projects).
Stencel's employees generally were required to maintain
daily timecards showing the number of hours devoted to specific
production contracts or R&D projects. Stencel used the data from
these records to determine its costs under a particular
production contract or R&D project, and, in the case of all
contracts with the Navy Department, those data were incorporated,
directly or indirectly, in the invoices or requests for progress
payments that Stencel submitted to the Navy Department.
On December 20, 1984, the Defense Criminal Investigative
Service executed a search warrant at Stencel's plant in Arden,
North Carolina, and seized certain of Stencel's records,
including certain employee timecards. On March 8, 1985, a
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