Opinion ID: 1507986
Heading Depth: 1
Heading Rank: 2

Heading: The Motion Picture Rights.

Text: The author granted the exclusive world-wide right to produce motion pictures based on five of his works for a stated period. As the contract was made in England, the Board treated it as a sale of property there and held the income derived from the sale not taxable. See Compania General v. Collector, 279 U.S. 306, 49 S.Ct. 304, 73 L. Ed. 704. We cannot agree that what occurred was a sale. It was instead but a granting of the right to produce motion pictures from the works for a limited time. The author remained the owner of his works and merely licensed their use for a particular object for a period. There was no transfer of title necessary to a completed sale. Whitfield v. United States, 92 U.S. 165, 23 L.Ed. 705. The fact that one lump sum was received for the privilege of using the property of the author instead of a series of payments does not alter the real character of what the taxpayer received. It was payment for the use of his literary property for the purpose named and in so far as it was in payment for use in the United States was taxable as a royalty paid in advance and received for the granting of that privilege. While there seems to be no direct authority for this view of the meaning of the statute, we believe it correct in principle and the order of the Board in this respect is reversed. The dispute as to income from the sale of dramatic rights relates only to royalties received from the licensing for dramatization of the copyrighted work entitled Scaramouche. Advance royalty was received in a lump sum together with additional royalties accruing from time to time. The Board held this income taxable and we agree that it was. As the taxpayer no longer questions that, no more need be said about it. It is also contended that Mr. Sabatini was innocently mistaken as to the necessity for filing tax returns and no penalties should have been imposed. There is, indeed, no reason to believe that he intended any tax evasion whatever. The government argues that the imposition of the penalties was mandatory but that is only where no returns are filed at all. Edmonds v. Commissioner, 9 Cir., 90 F.2d 14, 18. Here returns were filed late after the controversy arose and the imposition of penalties depends upon whether the failure to file on time was due to reasonable cause or to willful neglect. The burden to excuse the failure was on the taxpayer and the Board has found that no reasonable cause for the failure to file returns was shown. The taxpayer may well have believed that he was liable for no taxes and yet have had no reasonable cause for not filing timely returns. At any rate there is no basis in this record sufficient to warrant a reversal of the Board on this point. One other issue of a most unusual nature remains. The taxpayer employed a tax expert in this country to represent him after his controversy with the government arose. This man apparently forged a letter addressed to the taxpayer in care of the expert to the effect that after careful consideration had been given the matter in the office of the Commissioner it had been held that no deficiency existed. On the strength of that, he collected his fee from Mr. Sabatini. Later the expert employed a reputable attorney in Washington to represent Mr. Sabatini before the Board of Tax Appeals. This attorney did so without knowledge of the expert's fraudulent conduct and supposed Mr. Sabatini was duly informed of would be present. Misled by the expert as to the facts and hampered by the absence of Mr. Sabatini who had not been informed of the hearing, the attorney conceded liability for taxes assessed on income received from contracts involving what are called first serial rights in respect to certain works. The decision on this point followed the concession and we are now asked to correct the decision or remand to the Board that it may have an opportunity to do so as the fraud of the tax expert was not discovered until after it made its decision. As this matter was not raised before the Board and the record here is insufficient to inform us as to the facts, we cannot now review the decision sustaining the tax. General Utilities & Operating Co. v. Helvering, 296 U.S. 200, 56 S.Ct. 185, 80 L.Ed. 154; Helvering v. Pfeiffer, 302 U.S. 247, 58 S.Ct. 159, 82 L.Ed. 231. But the concession was seemingly part of the result of the fraud and the Board should have the opportunity to decide whether the taxpayer was deprived of any lawful rights because of it. It may be that the concession was harmless for the reason that the income was taxable but, as we cannot now decide that, the cause is remanded to the Board of Tax Appeals in order that the taxpayer, if so advised, may there apply for relief on this point. Decision modified in accordance with this opinion and cause remanded to the Board of Tax Appeals.