Cory v. Comm'r of Internal Revenue
| Decision Date | 31 January 1955 |
| Docket Number | Docket No. 37209. |
| Citation | 104 U.S.P.Q. 209,23 T.C. 775 |
| Parties | DANIEL M. CORY AND MARGOT CORY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Watson Washburn, Esq., for the petitioners.
Maurice A. Stark, Esq., for the respondent.
George Santayana, author of the literary work ‘Persons and Places,‘ caused the manuscript of that work to be delivered to petitioner, and petitioner, on November 10, 1942, as ‘Proprietor’ of the said work, entered into an agreement for its publications with Charles Scribner's Sons. The respondent determined that Santayana made a gift of his entire interest in ‘Persons and Places' to petitioner and that the proceeds payable by Scribner's to petitioner by reason of its publication of the work were taxable to petitioner as ordinary income. On the facts, held, that (1) Santayana had made a gift of his entire interest in ‘Persons and Places' to petitioner prior to November 10, 1942; (2) the agreement by petitioner and Scribner's was not a sale by petitioner of a property interest in ‘Persons and Places' to Scribner's, or of his rights with respect thereto; and (3) the amount of income realized and received by petitioner in 1944, the taxable year herein, was $12,000.
The respondent determined a deficiency in income tax against the petitioners for the taxable year 1944 in the amount of $13,770.50. The petitioners claim an overpayment of income taxes for that year in the amount of $7,699.06. The only issues presented for our decision are whether the amount of $42,057.66 derived from the publication of the book ‘Persons and Places,‘ or a part thereof, is taxable income of the petitioners for the year 1944 and, if so, whether as capital gain, as reported by the petitioners, or as ordinary income, as contended by the respondent.
The petitioners are husband and wife, and are citizens of the United States presently residing in England. They filed their joint income tax return for the calendar year 1944 with the collector of internal revenue for the third district of New York.
Daniel M. Cory, hereinafter referred to as the petitioner, has been occupied since the age of 19 as a scholar in philosophy. He was a close friend and disciple of the well-known philosopher and writer, George Santayana, who died in Rome on September 26, 1952. Santayana was a Spanish National, who, throughout the period here in question, resided in Italy.
Santayana, who expressed an interest in the petitioner's future, thought that the petitioner showed a great deal of talent in philosophy and made efforts to encourage him in the pursuit of it. From 1927 to 1940 the petitioner spent from 4 to 5 months of each year with Santayana. During these years Santayana made a practice of giving the petitioner various amounts as an allowance and for the payment of his living and traveling expenses.
The petitioner has written a great many essays on philosophy and epistemology which have been published in magazines devoted to those subjects, but, in accordance with the usual practice of scholars in those fields, the petitioner has received no remuneration for such articles. In the course of his life, the petitioner has published several poems and book reviews and has published two articles in the Atlantic Monthly. Petitioner's earnings from these and all other of his writings have been relatively insignificant in amount.
In 1940, on the advice of Santayana, the petitioner and his wife came to the United States from Switzerland, and remained in the United States until the end of 1944. Santayana attempted to defray a part of the petitioners' traveling expenses with a draft of 100 pounds, which could not be cashed because the funds on which it was drawn were frozen as a result of the war.
During his stay in this country, the petitioner attended and gave various lectures. He also conducted discussion groups in the department of philosophy at Columbia University. He earned no money form 1940 to 1944 except a few dollars from a poem and $300 for an article on Santayana published in the Atlantic Monthly. Throughout this period the petitioner was experiencing financial difficulties and was in need of money to support his wife and himself.
On June 26, 1940, Santayana, who continued to reside in Italy, wrote to the petitioner stating that the only thing that he could do financially for the petitioner was to send him checks drawn on a British bank. Because of war restrictions it was impossible for the petitioner to cash such checks. On October 21, 1940, Santayana wrote to Charles Scribner's Sons requesting them to pay to the petitioner the amount due to Santayana for royalties on December 1, 1940, and such further royalties as might later become due to Santayana until normal communications with Italy were restored. Pursuant to these instructions Scribner's paid the following amounts to the petitioner: 1940, $1,894.67; 1941, $1,245.67; 1942, $906.98; 1943, $694.13.
As early as 1936 or 1937, petitioner had been told by Santayana that he would be given Santayana's autobiography and all other of his writings unpublished as of the date of his death. In his will executed April 25, 1938, Santayana provided that all of his books, manuscripts, and personal effects should go to the petitioner. By August 2, 1938, Santayana was at work on his autobiography, which he had tentatively entitled ‘Persons and Places: Fragments of Autobiography.’ This autobiography was ultimately published in three volumes: ‘Persons and Places,’ ‘The Middle Span,‘ and ‘My Host the World.’ The first volume, ‘Persons and Places,‘ which was completed by October 12, 1941, is the only one with which this proceeding is concerned.
On April 30, 1941, Santayana wrote to John Hall Wheelock, the Scribner's representative with whom he usually dealt, as follows:
Now that I am almost entirely well again, I am returning to the Autobiography with new zest.
I will send you the Introduction at once, and it does not matter how long you decide to put off the publication.
Again, on August 22, 1941, Santayana wrote Wheelock:
In your kind letter of July 30 you say your firm is disposed to advance the payment of my royalties to Cory, if he should ever need such assistance. I am very glad to know this; because I feel partly responsible for having kept him out of steady employment during the best years of his life. My late friend Strong was also responsible and acted accordingly, as you know. It happens to be difficult for me for family reasons to leave Cory any legacy or to help him out of the money in charge of my nephew George Sturgis, which is largely Sturgis money in origin. But I feel free to dispose of my earnings, including my royalties; and for this reason (as I don't need them) I have asked you to let him have them during this war, when my private bank account in London is congealed. In case of my death, however, he might be in at least momentary difficulties; and I am not sure that my royalties could then legally go to him. For this reason I mean to give him my MSS including that of my autobiography, and am expressly leaving them to him in my Will. He will then make the contract for publication with you, and have a right to the royalties.
On September 18, 1941, Santayana wrote to the petitioner, stating that 16 chapters of his autobiography were finished and promising to send the petitioner a carbon copy of the 16 chapters then completed, if possible, from Italy or from Spain. Again, on October 12, 1941, Santayana wrote to the petitioner, saying:
Now as to your troubles and disappointments, I am extremely sorry. I am sending you today the carbon copy of Persons & Places, 280 odd pages, and you can have it published serially in some magazine, as Wheelock suggests, so as to get some return almost at once. I am writing to him about this, and won't repeat what I tell him, as you compare notes. Get my royalties, due on Dec. 1, earlier, as soon as you need them, and I will ask George Sturgis to send you a Christmas present, since I am as superflously (sic) rich in America as I am inconveniently poor in Italy. * * *
On the same date, October 12, 1941, Santayana also wrote to Wheelock as follows:
Before moving I mean to send Cory the MS of my Persons & Places, the carbon copy. I approve of your suggestion that it should first appear serially: it had occurred to me many years ago that such a thing might be possible. Arrange everything between you, without consulting me, as if I were already dead. I don't think there is much, or indeed anything more, to cut out, as I have already removed what seem to be dangerous: but cut out anything that you think tedious or unnecessary. I keep the original in reserve, for the future.
On October 17, 1941, Santayana wrote petitioner to the effect that the manuscript had been returned to him by the postal authorities and that because of postal regulations imposed by the Italian authorities as the result of the war it was impossible to mail the manuscript of ‘Persons and Places,‘ and further saying that he was distressed at having this means of helping the petitioner cut off, and promising to do what was possible to tide the petitioner over. In addition to promising the petitioner a Christmas present, Santayana stated that perhaps it would be possible to shift to the petitioner a small legacy and some other small sums to which Santayana was entitled.
However, Charles Scribner's Sons arranged for the delivery of the manuscript of ‘Persons and Places.’ When it was delivered to Scribner's, the manuscript bore on its cover the following notation, dated July 21, 1942:
As Messrs. Charles Scribner's Sons are aware, I have authorized my former secretary, Mr. Daniel M. Cory, to sign the contract for the publication of this book, to revise the text, and to receive all royalties that may become due in respect to it.
G. Santayana.
Upon receipt of the manuscript by Scribner's, the petitioner read...
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