Berlin v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 95236.
| Decision Date | 04 September 1940 |
| Docket Number | Docket No. 95236. |
| Citation | 42 BTA 668 |
| Parties | IRVING BERLIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
T. Newman Lawler, Esq., Arthur F. Driscoll, Esq., and Milton Rindler, C. P. A., for the petitioner.
Conway N. Kitchen, Esq., for the respondent.
This proceeding was brought for a redetermination of a deficiency of $11,092.80 in petitioner's income tax for the year 1935.
The question involved is whether a sum received by petitioner pursuant to certain contracts with RKO Studios, Inc., represented ordinary income for services rendered, or proceeds from the sale of capital assets.
FINDINGS OF FACT.
Petitioner, an individual with his principal place of business at 799 Seventh Avenue, New York, New York, for over thirty-three years has been an author and composer of songs and a producer. During this period he has composed approximately seven hundred songs. He writes songs for publication on a royalty basis and composes musical scores for stage attractions which he produces in conjunction with others. In the latter case he receives royalties as composer and a share of the profits as a producer.
In November 1934 petitioner was in California on a vacation with his wife. He was approached to do a picture for Fred Astaire and Ginger Rogers and on November 27, 1934, petitioner after negotiations entered into a written contract with RKO Studios, Inc., hereinafter referred to as "RKO." This contract by its terms "engage d and employe d" petitioner to render his services exclusively to RKO as a composer and lyricist to write and compose for it "the music and lyrics for the production musical numbers (hereinafter sometimes collectively referred to as the `Musical Material')", necessary and suitable in connection with the book of a dramatico-musical work tentatively entitled "Top Hat", which was currently in the process of being written. The agreement, inter alia, provides:
You petitioner hereby accept such employment and agree to perform your services hereunder conscientiously and to the full limit of your ability. You agree to commence the rendition of your services hereunder upon the execution hereof, and, subject to the further provisions hereof, to complete and deliver the Musical Material to us RKO on or before March 31, 1935; however, you will deliver to us installments of the Musical Material as the same are completed by you. * * * In writing and composing the Musical Material you agree to consider, and wherever in your judgment desirable, to accept our suggestions.
In the event that you complete the Musical Material prior to March 31, 1935, you will remain available in Los Angeles, California until and including March 31, 1935.
* * * * * * *
It is distinctly understood and agreed that you may work at such times of the day and night and at such place or places in and about the City of Los Angeles, California, as shall suit your convenience.
2. For your services hereunder and for all rights herein granted and/or agreed to be granted to us, we will pay you the minimum guaranteed amount (hereinafter called "minimum guaranteed compensation") of Seventy-five Thousand Dollars ($75,000.00) * * *
* * * * * * *
4. You hereby do further expressly give, grant, transfer, sell, assign and set over unto us, our successors and assigns, the right to utilize and/or make recordations of the Musical Material, or any part thereof; to make copies of such recordations and to produce and/or reproduce and/or license and/or sublicense the production and/or reproduction thereof or any part or parts thereof, publicly or otherwise, in connection with the production, exhibition, distribution, exploitation and/or advertising of the photoplay referred to in Article 1, including all rights necessary for the use of the Musical Material in connection with said photoplay, and the right to broadcast and license others to broadcast the Musical Material, or any part thereof, by radio in connection or in conjunction with radio programs advertising said photoplay * * *.
The agreement also provides that the musical material written by petitioner under the contract but not used in the photoplay reverts to petitioner as his sole and exclusive property; that all rights in the musical material not expressly granted to RKO, including, but not limited to, the so-called publication and mechanical instrument rights, are reserved for petitioner; that petitioner would not license the use in other motion pictures of any of the musical material for three years, and thereafter only to a limited extent; that petitioner guarantees that RKO would not have to pay any royalty fee to any one in the exercise of the rights granted it; that petitioner would have musical material copyrighted wherever published or offered for sale, have the notice of copyright affixed, and assign to RKO under the copyrights for the original and renewal terms the rights granted it under the contract; that petitioner appoint RKO his attorney to institute and prosecute proceedings for the protection of the rights granted it, bringing suit, if it desires, in petitioner's name; that petitioner makes certain warranties as to the originality of the musical material and the exclusiveness of the grant to RKO.
The agreement continues in paragraph 10 thereof as follows:
(b) Should you, at our request, during the production of said photoplay, perform your services hereunder in any place other than the City of Los Angeles, California and its environs within a radius of twenty-five (25) miles thereof, we agree to pay the expense of necessary first-class board, lodging and transportation for you * * * reasonably incurred by you in the rendition of such services.
And in paragraph 11:
(f) We shall not be liable for any compensation or fee to any agent in connection with this agreement or the services to be rendered by you hereunder.
And, paragraph 12:
12. Notwithstanding anything elsewhere herein contained, if on February 1, 1935, we shall not have completed at least a treatment of the book of said dramatico-musical work, you will, nevertheless, endeavor, to the best of your ability, to complete the Musical Material prior to April 1, 1935, but in the event that you are unable so to do by reason of our failure to have completed such a treatment, you will deliver to us hereunder six (6) musical numbers with lyrics therefor, suitable in connection with and adapted to the general subject matter of the story idea underlying said book. Upon the delivery of said musical numbers to us as aforesaid, your obligation hereunder will cease and determine.
In the picture "Top Hat" were the following songs:
Top Hat, White Tie and Tails Cheek to Cheek No Strings (I'm Fancy Free) Isn't This a Lovely Day The Piccolino
"Top Hat, White Tie and Tails" had been written prior to November 1934, for a work, "More Cheers", which was not produced; "Cheek to Cheek" was rewritten for the picture, the lyric from a previous song by that name and the melody from a part of a song entitled "Moon Over Napoli", which had been composed for "More Cheers"; the melody for "The Piccolino" had been written for and used in the first Music Box Review in 1922; and "No Strings (I'm Fancy Free)" and "Isn't This a Lovely Day" were completely written expressly for the picture "Top Hat."
Petitioner wrote at least ten songs for "Top Hat" which were never used.
Irving Berlin, Inc., of which petitioner is an officer, registered claim for the unpublished and the published copyrights on the words and music of above named songs on the dates indicated below:
------------------------------------------------------------------------
| Unpublished | Published
-----------------------------------------|---------------|--------------
Top Hat, White Tie and Tails ___________ | Feb. 28, 1935 | July 25, 1935
Cheek to Cheek _________________________ | Dec. 19, 1934 | July 3, 1935
No Strings (I'm Fancy Free) ____________ | Mar. 22, 1935 | July 25, 1935
Isn't This a Lovely Day ________________ | Mar. 8, 1935 | July 3, 1935
The Piccolino __________________________ | Jan. 28, 1935 | July 25, 1935
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On March 15, 1935, petitioner entered into another agreement with RKO Studios, Inc. It is of similar import as the November 1934 agreement, although it varies to some extent.
Paragraph 1 of the March contract provides in part:
1. Subject to the terms and conditions hereinafter set forth, you hereby agree to write and compose the music and lyrics for the production musical numbers (hereinafter sometimes collectively referred to as the "Musical Material") necessary and suitable in connection with a musical revue tentatively entitled "LEND ME YOUR EARS", which we are currently having written and upon which we intend to base a so-called feature length motion picture * * *.
Paragraph 2 provides in part:
2. As consideration for your performance of your agreements hereunder and for all...
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