Rainger v. Comm'r of Internal Revenue (In re Estate of Rainger)

• Decision Date: 30 March 1949
• Docket Number: Docket No. 8995.
• Citation: 12 T.C. 483
• Parties: ESTATE OF RALPH RAINGER, DECEASED, ELIZABETH RAINGER, EXECUTRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

12 T.C. 483

ESTATE OF RALPH RAINGER, DECEASED, ELIZABETH RAINGER, EXECUTRIX, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 8995.

Tax Court of the United States.

Promulgated March 30, 1949.

1. Decedent transferred all funds held as community property to the separate bank account of his wife in order to avoid his own generosity in making unfortunate loans and injudicious investments. Since there was no agreement to transmute community property to separate property, held, management and control of the property by the wife is insufficient, standing alone, to effect such transmutation.

2. A decree of the state court in inheritance tax proceedings purporting to decide that community property was transmuted to separate property of the husband and wife held as tenants in common, held, under facts, to be, in effect, a consent decree not deciding a real controversy on its merits, and not binding upon this Court.

3. Decedent, a noted song composer, wrote his compositions for movie studios under contracts, which reserved to decedent the non-dramatic performing rights in the compositions. These performing rights were assigned under agency contracts to the American Society of Composers, Authors and Publishers. Held, the decedent owned a vested interest in these nondramatic performing rights which passed to his widow at death.

4. Upon the facts, held, petitioner actually expended $50,000 reasonably required for the support of decedent's dependents during settlement of the estate, as allowed by the laws of the state having jurisdiction of the estate. Harry J. Miller, Esq., and George T. Altman, Esq., for the petitioner.

H. A. Melville, Esq., for the respondent.

Five issues were raised in connection with the determination of deficiency in estate tax in the amount of $35,804.96. Petitioner originally raised the issue of the constitutionality of the 1942 amendment to section 811(e)(2) of the Internal Revenue Code. The proceedings were then placed upon the reserve calendar, pending decisions of the Supreme Court of the United States in Fernandez v. Wiener, 326 U.S. 340, and United States v. Rompel, 326 U.S. 367. Neither at trial nor in brief has petitioner attempted to distinguish these cases. We, therefore, assume the abandonment of this issue. Another issue concerning the deduction of attorney fees in excess of $1,249.70 has been reserved and will be determined in a recomputation under Rule 50. See also Rule 51, Rules of Practice before the Tax Court of the United States, Revised to December 15, 1948.

The issues remaining for decision are: (1) Whether the community property of the deceased and his wife was transmuted prior to decedent's death into separate property held as tenants in common so as to prevent its inclusion in the entirety in the gross estate within the meaning of section 811(e)(2), Internal Revenue Code; (2) whether the decedent owned any right, title, or interest includible in his gross estate in and to certain musical works, including the right of public performance thereof, the rights, royalties, and license fees, and the rights of copyright and renewal, together with any membership rights in the American Society of Composers, Authors and Publishers; and (3) whether respondent erred in disallowing deductions from the gross estate in excess of $24,000 for support of decedent's dependents pending the administration of decedent's estate. These three issues will hereinafter be referred to as (1) the separate community property issue, (2) the Ascap issue, and (3) the support issue.

The question has been raised in connection with the first two issues whether this Court is bound by certain orders of the state court administering decedent's estate. Respondent has affirmatively pleaded estoppel as an alternative to the first issue.

The evidence has been presented by stipulation and by oral and documentary evidence.

FINDINGS OF FACT.

The decedent was Ralph Rainger, a noted composer of popular music. His widow, Elizabeth Rainger, whom he married in 1927, is the petitioner herein, representing the estate as sole executrix. The decedent and his wife owned no property of present import prior to 1930, when they moved to California, a community property state. The decedent remained a resident of California until he was killed in an airplane collision near Palm Springs, California, on October 23, 1942. He was also survived by three minor children, whose ages were at the time of his death, respectively, eight years, five years, and eighteen months. The Federal estate tax returns were filed with the collector of internal revenue for the sixth district of California at Los Angeles.

From early 1930 until his death the decedent was employed by Paramount Studios, Inc., or its predecessor corporations, and by Twentieth Century-Fox Film Corporation. The decedent composed approximately 150 songs during the course of his employment with these major studios, which were used in connection with approximately 60 shows or motion pictures.

In 1930 the decedent applied for membership in the American Society of Composers, Authors and Publishers, hereinafter referred to as ‘Ascap.‘ He was elected to membership in Ascap in 1931.

Ascap, a voluntary unincorporated association organized under the laws of New York, is a society of authors, composers, and publishers who have banded together for the purpose of creating an agency to license the entire repertoire of songs belonging to its members to various establishments, persons, and radio broadcasting systems, who or which publicly perform music. Ascap's repertoire of songs contained 75 to 80 per cent of all musical works of fine entertainment value.

Prior to the existence of Ascap, anyone who desired to publicly perform a musical composition was forced to secure the right to play each particular composition from the individual author, composer, and publisher for each performance. Since the creation of Ascap the entire repertoire is usually licensed for one year. The income derived from these various licensing agreements is then split two ways. One-half is paid to the publishers and the other half is divided between the various authors and composers in accordance with a complicated classification system which pays the author or composer according to the number, the nature, the character, the prestige of his songs included in the society's catalog, as well as the length of time the author or composer has been a member, and the publicity and vogue of each composition. By the time of the decedent's death he had reached the second highest classification and received quarterly payments from Ascap of an amount in the neighborhood of $2,000 each.

To be eligible for membership in Ascap the decedent had to have published not less than one work, composition, or writing, in addition to regularly practicing the profession of writing music. The decedent listed ten songs in his application and subscribed the following provision: ‘The applicant represents that there is in existence or effect no assignment, direct, or indirect, or non-dramatic performing rights in or to any of the works listed herein, except as such may be in existence or effect with members of the said society.‘

The decedent's agreement with Ascap provided:

The Owner sells, assigns, transfers, and sets over unto the Society for the term hereof, the entire exclusive right of public performance * * * , in each musical work:

Of which the Woner is a copyright proprietor; or

Which the Owner, alone, or jointly, or in collaboration with others, wrote, composed, published, acquired or owned; or

In which the Owner now has any right, title, interest or control whatsoever, in whole or in part; or

Which hereafter, during the term hereof, may be written, composed, acquired, owned, published or copyrighted by the Owner, alone, jointly or in collaboration with others; or

In which the Owner may hereafter, during the term hereof, have any right, title, interest or control, whatsoever, in whole or in part.

The representative contracts between the decedent and the moving picture studios each provided that the musical works written pursuant to the employment should become property of the studio. The contracts also provided for the payment of salary and royalties according to the use made of the music. The Paramount contract specifically excepted the performing rights (which were the subject matter of the contracts with Ascap) from its provisions. The Twentieth Century-Fox Film Corporation contract specifically provided that it was subject and inferior to the the rights of Ascap with respect to the artists' compositions. In case Ascap should surrender any such rights they were specifically reserved to the artist and not to the studio.

Certificates of registration for the various songs written by the decedent were issued by the Federal Register of Copyrights to the studios.

The articles of association of Ascap provide that membership ceases at death. However: ‘Any person who has acquired, by will or under the law, the right, title and interest of a deceased composer or author in any musical works, including the right to public performance thereof may be elected to membership * * * .‘ Up to and including 1944, 242 members of Ascap have died. Ascap has issued 204 posthumous memberships. Of the 38 memberships where no successor was elected, the society did not act with reference to 19 because the musical compositions involved were not deemed of sufficient value. In the case of the other 19, the parties in interest could not agree with themselves or with Ascap. Ascap is interested in the posthumous memberships in order to insure that the compositions remain in the society's catalog. After decedent's death, his widow executed agreements with Ascap relating to decedent's musical compositions similar to those executed by decedent, and became a member of Ascap. Thereafter she received the distributions from Ascap which...