Arlen v. Comm'r of Internal Revenue
| Decision Date | 03 August 1967 |
| Docket Number | Docket No. 2109-65. |
| Citation | 48 T.C. 640,155 U.S.P.Q. 665 |
| Parties | HAROLD ARLEN AND ANYA ARLEN, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Benjamin Alpert and Myles J. Sachs, for the petitioners.
William F. Chapman, for the respondent.
Petitioner Harold Arlen is a composer of popular music of modern times. Between 1929 and 1943 he assigned all his right, title, and interest in certain musical compositions to five wholly owned subsidiaries of a parent corporation. Under sec. 24 of title 17 of the United States Code, a copyright could be renewed for an additional term of 28 years by certain persons under certain conditions. In March 1959 petitioner and his wife entered into a copyright renewal agreement with the five subsidiaries. Incident to this agreement petitioners also entered into an agreement with the parent company whereby the parent company agreed to lend petitioner $50,000. Petitioner then executed and delivered to the parent company 10 negotiable, non-interest-bearing unconditional promissory notes of $5,000 each, payable 1 note each year for the next 10 years. Held, the $50,000 received by petitioner in 1959 from the parent company was a loan and as such did not constitute taxable income in that year except to the extent of $5,000 of royalties earned and applied to the repayment of the first note in that year.
Respondent determined a deficiency in income tax for the calendar year 1959 in the amount of $41,413.
The only remaining issue is whether an amount of $50,000 received in 1959 by petitioner Harold Arlen, a composer of popular music, from Music Publishers Holding Corp. was received as a bona fide loan or was received as advance royalties.
Other errors were assigned but have been agreed upon. Effect will be given to these agreements under Rule 50.
The stipulated facts are found as stipulated.
Petitioners1 are husband and wife with residence in New York, N.Y., on the date when the petition in this proceeding was filed. They filed their joint calendar year Federal income tax return for 1959 on the cash basis with the district director of internal revenue, Manhattan ‘district, New York, N.Y.
The notice of deficiency was mailed to petitioners on January 19, 1965. In a statement attached to the notice petitioners were advised of the following:
+-------------------------------------------------------------------+
¦ADJUSTMENTS TO INCOME ¦
+-------------------------------------------------------------------¦
¦ ¦ ¦ ¦
+--------------------------------------------------------+----------¦
¦Taxable income as disclosed by return ¦$80,292.00¦
+--------------------------------------------------------+----------¦
¦Unallowable deductions and additional income:¦ ¦ ¦
+---------------------------------------------+----------+----------¦
¦(a) Advance royalties ¦$45,000.00¦ ¦
+---------------------------------------------+----------+----------¦
¦(b) Royalty income ¦20,000.00 ¦ ¦
+---------------------------------------------+----------+----------¦
¦(c) Travel and entertainment expense ¦1,500.00 ¦ ¦
+---------------------------------------------+----------+----------¦
¦(d) Studio expense ¦250.00 ¦ ¦
+---------------------------------------------+----------+----------¦
¦(e) Medical expenses ¦971.00 ¦67,721.00 ¦
+--------------------------------------------------------+----------¦
¦Taxable income as corrected ¦148,013.00¦
+-------------------------------------------------------------------+
EXPLANATION OF ADJUSTMENTS
(a) It is held that the amount of $50,000.00 received by you in 1959 from Music Publishers Holding Corporation is includible in your gross income for that year. Inasmuch as you reported only $5,000.o0, your gross income has been increased by the difference, or $45,000.00.
Only adjustment (a) remains in issue.2
Petitioners are also known as Harold Arluck and Anya Arluck.
Petitioner is a composer of popular music of modern times.
Harms, Inc., M. Witmark & Sons, Remick Music Corp., Advanced Music Corp., and New World Music Corp. are music-publishing companies and each of them is a wholly owned subsidiary of Music Publishers Holding Corp. which in turn is a wholly owned subsidiary of Warner Bros. Pictures, Inc.
Between 1929 and 1943 petitioner assigned all his right, title, and interest to 46 musical compositions to the above-mentioned five music publishing companies, hereinafter sometimes referred to as the publishers. This assignment extended for the term of the original copyright period of 28 years from first publication for each of said musical compositions.
The names of the musical compositions, the year when the original copyrights were issued, and the publishers to which the musical compositions were assigned are as follows:
+-------------------------------------------------------------+
¦Year¦Title ¦Publisher ¦
+----+----------------------------------+---------------------¦
¦1929¦Gladly ¦M. Witmark & Sons ¦
+----+----------------------------------+---------------------¦
¦ ¦Get Happy ¦Remick Music Corp. ¦
+----+----------------------------------+---------------------¦
¦1930¦Contagious Rhythm ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Hittin' the Bottle ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Linda ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦The March of Time ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦One Love ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Out of a Clear Blue Sky ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Song of the Gigolo ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦You Wanted Me, I Wanted You ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Learn to Croon ¦Advanced Music Corp. ¦
+----+----------------------------------+---------------------¦
¦ ¦Sweet and Hot ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦What Do We Care ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦While You Were Young ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦You'll Do ¦Do. ¦
+----+----------------------------------+---------------------¦
¦1931¦You Said It ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦If He Really Loves Me ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦It's Different With Me ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Tell Me WIth a Love Song ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦I Love a Parade ¦Harms, Inc. ¦
+----+----------------------------------+---------------------¦
¦1932¦I Gotta Right to Sing the Blues ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Rockin' in Rhythm ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Satan's Lil Lamb ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Two Feet in 2/4 Time ¦Do. ¦
+----+----------------------------------+---------------------¦
¦1933¦It's Only a Paper Moon ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Shame on You ¦Do. ¦
+----+----------------------------------+---------------------¦
¦1934¦Fun to be Fooled ¦New World Music Corp.¦
+----+----------------------------------+---------------------¦
¦ ¦Let's Take a Walk Around the Block¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Shoe'in the Mare ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦What Can You Say in a Love Song ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦You're a Builder Upper ¦Do. ¦
+----+----------------------------------+---------------------¦
¦1936¦Fancy Meeting You ¦Harms, Inc. ¦
+----+----------------------------------+---------------------¦
¦ ¦In YOur Own Quiet Way ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Let's Put Our Heads Together ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦Speaking of the Weather ¦Do. ¦
+----+----------------------------------+---------------------¦
¦ ¦I Love to Sing-A ¦Remick Music Corp. ¦
+----+----------------------------------+---------------------¦
¦ ¦Save Me Sister ¦Do....To continue reading
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