Goodson-Todman Enters., Ltd. v. Comm'r of Internal Revenue

• Decision Date: 25 February 1985
• Docket Number: Docket No. 10604-81.
• Citation: 84 T.C. 255,84 T.C. No. 20
• Parties: GOODSON-TODMAN ENTERPRISES, LTD., AND ITS SUBSIDIARY CORPORATIONS MID-HUDSON PUBLICATIONS, INC., CACTUS PRODUCTIONS, INC., ULSTER OFFSET CORP., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

84 T.C. 255

84 T.C. No. 20

GOODSON-TODMAN ENTERPRISES, LTD., AND ITS SUBSIDIARY CORPORATIONS MID-HUDSON PUBLICATIONS, INC., CACTUS PRODUCTIONS, INC., ULSTER OFFSET CORP., Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10604-81.

United States Tax Court

Filed February 25, 1985

Petitioner is the producer of the game show, ‘To Tell The Truth‘ (TTTT). During the years in question, petitioner claimed investment tax credits for its costs incurred in connection with the production, for syndication, of TTTT tapes. Respondent disallowed the credits based on his determination that the tapes did not qualify for the investment tax credit under secs. 38 and 48(k)(1)(B), I.R.C., 1954. HELD, petitioner's TTTT tapes constituted qualified films within the meaning of sec. 48(k)(1)(B), since they were ‘created primarily for use as public entertainment‘ and since the market for those tapes was not ‘primarily topical‘ or ‘otherwise essentially transitory in nature.‘ Petitioner, therefore, is entitled to claim the investment tax credit with respect to those tapes. Scope of section 1.48-8(a)(3)(iii), Income Tax Regs., considered and respondent's interpretation thereof rejected. THEODORE J. KLETNICK, for the respondent,

ROBERT A. SCHULMAN, LYMAN G. FRIEDMAN, and J. ALAN GALBRAITH, for the petitioners.^*

STERRETT, JUDGE:

In his notice of deficiency dated March 26, 1981, respondent determined deficiencies in petitioners' Federal income taxes for the taxable years ended March 31, 1973, March 31, 1974, and March 31, 1977, in the respective amounts of $33,604, $160,587, and $11,482. ¹ The ultimate issue for decision is whether, pursuant to sections 38 and 48(k), I.R.C. 1954, petitioners are entitled to claim investment tax credits with respect to the videotaped television series, ‘To Tell The Truth.‘

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts, together with the exhibits attached thereto, is incorporated herein by this reference. ² Goodson-Todman Enterprises, Ltd. (hereinafter referred to as petitioner), is a corporation duly organized and existing under the laws of the State of New York. At the time the petition in this case was filed, petitioner's principal place of business was located in New York, New York. Petitioner's subsidiary corporations, Mid-Hudson Publications, Inc., Cactus Productions, Inc., and Ulster Offset Corp., are involved in this proceeding only by reason of having filed consolidated income tax returns with petitioner.

Since the early l950s the principal business of petitioner and related entities has been the production of television programs. Petitioner is an established producer in the television industry. Among other productions, petitioner and its related entities have produced ‘What's My Line?‘, ‘I've Got a Secret‘, ‘Password‘, ‘Family Feud‘, ‘The Price is Right‘, and ‘Beat The Clock‘.

In the fall of 1956, petitioner commenced production of the television series ‘To Tell The Truth‘ (hereinafter referred to as TTTT). Production of this series was the principal business activity of petitioner. TTTT was successful. It was televised during both prime time and daytime over the CBS network from 1956 through 1969. From 1969 through 1980, the series was taped to be syndicated to various stations throughout the United States. The syndicated shows were produced during the years that are before the Court.

TTTT's format remained substantially the same throughout its history. Each TTTT show was one-half hour in duration and normally consisted of two ‘spots.‘ Each show was taped before a live audience and subsequently televised. Appearing on each show were a master of ceremonies or ‘emcee,‘ four celebrity panelists, and contestants (three per spot). The emcee and celebrity panelists were permanent members of the TTTT series and regularly appeared on numerous shows throughout the ‘season.‘ Each was recognized by the viewing public as an entertainment personality or celebrity. The emcees included such widely known persons as Bud Collyer, Garry Moore, Bill Cullen, and Joe Garagiola. The celebrity panelists included hosts of other game shows, actors and comedians, TV news people, commentators, sportscasters, athletes, and former politicians. Specifically, panelists included such people as Gene Rayburn, Allen Ludden, Kitty Carlisle, Peggy Cass, Nipsey Russell, Hugh Downs, and Dick Clark. The three contestants used in each spot were comprised of a ‘real person‘ and two ‘imposters.‘

At the beginning of each TTTT show the announcer introduced the emcee, who made a brief statement, introducing the first spot. The four celebrity panelists were then introduced, followed by the appearance on the stage of the three contestants involved in the first spot. Each contestant would announce that he was the particular real person who was the subject of the spot. Of course, only one contestant was the real person. The other two contestants were imposters. The emcee then read a short prepared statement or ‘affidavit‘ that related the story of the real person. A sample prepared statement is as follows:

I, John Fulton Short, an American, am a professional bullfighter and illustrator. I have fought bulls and exhibited my paintings in both Mexico and Spain where I am known as ‘El Yanqui.‘ I fought my first bull in 1953, and, to date, I have fought and killed 53 bulls.

Signed John Fulton Short

The affidavit having been read, each member of the panel in turn then asked questions of each contestant. The panelists' goal was to identify the real person. Each panelist had one minute in which to question the contestants and within that allotted time was able to ask five to seven questions. The ringing of a bell marked the end of questioning by each panelist.

The real person was required to answer all questions truthfully. The imposters were not required to do so. Instead, they attempted to assume the identity of the real person and answered questions accordingly in an attempt to mislead the panelists.

Once all the questioning was completed, each panelist marked on a card the number 1, 2, or 3 to designate his selection of the particular contestant he believed to be the real person. The panelists might state some reason, humorous or serious, to explain his vote. Next, the emcee would ask the real person to identify himself, for example, ‘Will the real John Fulton Short please stand up.‘ The real person and the imposters then would engage in a discussion with the emcee and the panelists with respect to details of their lives.

The outcome of each particular spot was undetermined at the time the spot started. The panelists competed individually against the contestants and each other. The panelists were instructed by the producers of TTTT not to reveal any information that would lead to identification of the real person by the other panelists and thereby eliminate the competitive factor. The three contestants were each guaranteed $50 for appearing on TTTT, and, if all four panelists voted incorrectly, the three contestants divided $500. In addition to the cash awards, the contestants were given gifts of nominal value, such as costume jewelry, perfume, etc., supplied by advertisers. Some contestants were reimbursed for travel expenses.

An individual was selected to participate on TTTT as a ‘real person‘ because of his connection with an event, achievement or happening that petitioner perceived to be of interest to the television audience. TTTT had the same audience appeal as such contemporary shows as ‘Real People‘ and ‘That's Incredible.‘ A common characteristic of TTTT and these shows is that they all communicate a noteworthy aspect of an individual that is of interest to the viewing public. Set forth below is a representative list and brief descriptions of certain real persons who appeared on TTTT shows that were taped between April 8, 1975 and March 30, 1976 for telecasting during the season commencing in the fall of 1975.

Roy Volker is a professional treasure hunter. As such, he found the single most valuable coin ever discovered—the 1715 Eight Escuedo Spanish Gold Royale. He's written a book for potential treasure hunters which informs you, not only where to search, but also how to clean, care for and dispose of what you find. It's titled TREASURE UNDER YOUR FEET.

Ed Feinhandler won the ugly man contest for 4 years. He's the first person to win the title 3 consecutive times since the contest began back in 1961 and the only one to win without the use of makeup.

Benson Huggard is a long-distance swimmer. He began distance swimming in 1961 when he bet a lady 14 years his senior...he lost the bet. Since then he's broken ten world records.

Traphes Bryant has served the equivalent of six terms in the White House... mostly in the dog house. He's been the kennel keeper at the White House for four Presidents.

George Sroda is an oligo-chaetologist...an expert on worms. At present, he owns the nation's largest experimental worm laboratory and owns two million worms.

Arthur Weiner has crashed over one thousand parties. As New York City's most un-invited guest, he's barged in on every conceivable type of function—after theatre parties, fashion shows, art gallery galas, etc.

Joan Haas is a former model and hairdresser. Her business career ended because of her increasingly worsening health...Bright's Disease. Since then, she's had 21 major operations and quite literally is part human and part machine. In some medical circles, she is known as ‘the six million dollar woman.‘

Theodore W. Roth is considered to be America's foremost probate investigator. As head of ‘MISSING HEIRS, INTERNATIONAL‘, he has travelled all over the world finding missing heirs.

Anna Leider won first prize in the National Football League Bicentennial Scholarship Essay Contest. For winning the contest, she received an NFL watch and pendant, a birthday call from Commissioner Rozelle, and a $10,000...