Commissioner of Internal Revenue v. Wodehouse 10 13, 1948

Decision Date13 June 1949
Docket NumberNo. 84,84
Citation337 U.S. 369,69 S.Ct. 1120,93 L.Ed. 1419
PartiesCOMMISSIONER OF INTERNAL REVENUE v. WODEHOUSE. Argued Dec. 10-13, 1948
CourtU.S. Supreme Court

Miss Melva M. Graney, Washington, D. C., for petitioner.

Mr. Watson Washburn, New York City, for respondent.

[Argument of Counsel from page 370 intentionally omitted] Mr. Justice BURTON delivered the opinion of the Court.

The question before us is whether certain sums received in 1938 and 1941, by the respondent, as a nonresident alien author not engaged in trade or business within the United States and not having an office or place of business therein, were required by the Revenue Acts of the United States to be included in his gross income for federal tax purposes. Each of these sums had been paid to him in advance and respectively for an exclusive serial or book right throughout the United States in relation to a specified original story written by him and ready to be copyrighted. The answer turns upon the meaning of 'gross income from sources within the United States' as that term was used, limited and defined in §§ 212(a), 211 and 119 of the Revenue Act of 1938, and the Internal Revenue Code, as amended in 1940 and 1941.1 For the reasons hereinafter stated, we hold that these sums each came within those kinds of gross income from sources within the United States that w re referred to in those Acts as 'rentals or royalties for the use of or for the privilege of using in the United States, * * * copyrights, * * * and other like property,'2 and that, accordingly, each of these seems was taxable under one or the other of those Acts.

The respondent, Pelham G. Wodehouse, at the times material to this case, was a British subject residing in France. He was a nonresident alien of the United States not engaged in trade or business within the United States and not having an office or place of business therein during either the taxable year 1938 or 1941. He was a writer of serials, plays, short stories and other literary works published in the United States in the Saturday Evening Post, Cosmopolitan Magazine and other periodicals.

February 22, 1938, the Curtis Publishing Company (here called Curtis) accepted for publication in the Saturday Evening Post the respondent's unpublished novel "The Silver Cow." The story had been submitted to Curtis by the respondent's literary agent, the Reynolds Agency, and, on that date, Curtis paid the agency $40,000 under an agreement reserving to Curtis the American serial rights in the story, including in such rights those in the United States, Canada and South America. The memorandum quoted in Appendix B, infra, 337 U.S. page 398, 69 S.Ct. page 1134, constituted the agreement. Also in 1938, the respondent received $5,000 from Doubleday, Doran & Company for the book rights in this story. The story was published serially in the Saturday Evening Post, July 9 to September 3, 1939.

Pursuant to a like agreement, the respondent received $40,000 from Curtis, December 13, 1938, for serial rights in and to his story "Uncle Fred in the Springtime." It was published serially in the Saturday Evening Post, April 22 to May 27, 1939.

July 23, 1941, Hearst's International Cosmopolitan Magazine, through the respondent's same agent, paid the respondent $2,000 for "all American and Canadian serial rights (which include all American and Canadian magazine, digest, periodical and newspaper publishing rights)" to the respondent's article entitled "My Years Behind Barbed Wire." The agreement appears in Appendix C infra, 337 U.S. page 400, 69 S.Ct. page 1134. Apparently this story was published shortly thereafter.

August 12, 1941, Curtis, trough the same agent, paid the respondent $40,000 for the "North American (including Canadian) serial rights' to respondent's novel entitled 'Money in the Bank." The agreement was in the form used by Curtis in 1938.3 The evidence does not state that this story was published but it shows that Curtis, pursuant to its agreements, took out a United States copyright on each of the respective stories named in the foregoing agreements. After each story's serial publication, Curtis reassigned to the respondent, on the latter's demand, all rights in and to the story excepting those rights which the respondent expressly had agreed that Curtis was to retain. The respective sums were thus paid to the respondent, in advance and in full, for the serial or book rights which he had made available. For United States income tax purposes, the respondent's literary agent, or some other withholding agent, withheld from the respondent, or from his wife as his assignee, a part of each payment.

In 1944 the Commissi ner of Internal Revenue, petitioner herein, gave the respondent notice of tax deficiencies assessed against him for the taxable years 1923, 1924, 1938, 1940 and 1941. In these assessments, among other items, the Commissioner claimed deficiencies in the respondent's income tax payments based upon his above-described 1938 and 1941 receipts. The respondent, in a petition to the Tax Court for a redetermination of such deficiencies, not only contested the additional taxes assessed against him, which were based upon the full amounts of those receipts, but he asked also for the refund to him of the amounts which had been withheld, for income tax purposes, from each such payment. The Tax Court entered judgment against him for additional taxes for 1938, 1940 and 1941, in the respective amounts of $11,806.71, $8,080,83 and $1,854,85. In speaking of the taxes for 1940 and 1941, the Tax Court said:

"The first issue, found also in the year 1938, presents the question of the taxability of lump sum payments for serial rights to literary works. Counsel for the petitioner (Wodehouse, the respondent here) concedes that substantially the same issue was raised and decided in Sax Rohmer, 5 T.C. 183; aff(irmed 2 Cir.), 153 F.2d 61, certiorari denied 328 U.S. 862 (66 S.Ct. 1367, 90 L.Ed. 1632).

"In Sax Rohmer, supra, we held that the lump sum payments for serial rights were royalties and, as such, were taxable to the recipient. The arguments advanced in the cases at bar follow the same pattern as those appearing in the Sax Rohmer case, as presented to this Court and to the Circuit Court of Appeals. The petitioner's contentions were rejected in both courts and for the same reasons stated in the opinions therein, they are rejected here." 8 T.C. 637, 653.

As the respondent's taxes for 1938 and 1941 had been paid to the Collector of Internal Revenue at Baltimore, Maryland, his petition for review of the Tax Court's judgment for those years was filed in the United States Court of Appeals for the Fourth Circuit. The judgment against him was there reversed, 166 F.2d 986, one judge dissenting on the authority and reasoning of Rohmer v. Commissioner, 2 Cir., 153 F.2d 61. Because of the resulting conflict between the Circuits and also because comparable issues as to this respondent's taxes for 1940 were pending before the Court of Appeals for the Second Circuit, we granted certiorari. 335 U.S. 807, 69 S.Ct. 34.4

The petitioner contends that receipts of the type before us long have been recognized as rentals or royalties paid for the use of or for the privilege of using in the United States, patents, copyrights and other like property. Keeping in mind that, before 1936, such receipts were expressly subject to withholding as part of the taxable income of nonresident alien individuals, he contends that those receipts remained taxable and subject to withholding in 1938 and 1941, after the standards for taxation of such aliens had been made expressly coterminous with the standards for subjecting this part of their income to withholding procedures.

In opposition, the re pondent argues, first, that each sum he received was a payment made to him in return for his sale of a property interest in a copyright and not a payment to him of a royalty for rights granted by him under the protection of his copyright. Being the proceeds of a sale by him of such a property interest he concludes that those proceeds were not required to be included in his taxable gross income because the controlling Revenue Acts did not attempt to tax nonresident alien individuals, like himself, upon income from sales of property. Secondly, the respondent argues that, even if his receipts were to be treated as royalties, yet each was received in a single lump sum and not 'annually' or 'periodically,' and that, therefore, they did not come within his taxable gross income.

The petitioner replies that, in this case, we do not properly reach the fine questions of title, or of sales or copyright law, thus raised by the respondent as to the divisibility of a copyright or as to the sale of some interest in a copyright. The petitioner states that the issue here is one of statutory interpretation. It is confined primarily to the taxability of the respondent's receipts within the broad, rather than narrow, language of certain Revenue Acts. Attention must be focused on those Revenue Acts. If their terms made these receipts taxable because of the general nature of the transactions out of which the receipts arise, namely, payments for the use of or for the privilege of using copyrights, then it is those statutory definitions, properly read in the light of their context and of their legislative history, that must determine the taxability of the receipts. He argues that the language of the Revenue Acts does not condition the right of the United States to its revenue upon any fine point of property law but covers these receipts in any event. Treating the respondent's receipts simply as representing payments for the use of or the privilege of using copyrights the petitioner argues that they constituted income that was subject both to withholding and to taxation in 1938 and 1941. He claims finally that the respondent cannot escape taxation of such receipts...

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    ...Doll v. Commissioner, 8 Cir., 1945, 149 F.2d 239, cases cited at page 243, footnotes 6 and 7. See also, Commissioner of Internal Revenue v. Wodehouse, 1949, 337 U.S. 369, 69 S.Ct. 1120. In recent cases the United States Court of Appeals for the Eighth Circuit has also approved that doctrine......
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