COHAN v. COMMISSIONER
Download the complete brief here: 39 F.2d 540 (2d Cir. 1930)
(CA-2), United States Circuit Court of Appeals for the Second Circuit, No. 114, 39 F2d 540
Decided March 3, 1930
George M. Cohan, Petitioner,
v.
Commissioner of Internal Revenue, Respondent.
Petition to review the decision of the Board of Tax Appeals.
(1) A mother is held not to be in partnership with her son where she received half the proceeds of his enterprises but contributed nothing in the way of property or services. Amounts so paid to her were gifts and were properly included in the son’s income.
(2) Where a son agreed with a father that the profits of a play, in the writing of which both collaborated, should be the father’s, it is held that the play became the father’s property so that after his death (intestacy being assumed) the royalties were taxable only one-third to the son, there being also a surviving widow and daughter. [The Board held that the full amount of the royalties was taxable to the son, holding that no valid gift thereof had been made prior to the father's death, the son not having divested himself of control of the rights.]
(3) Royalties paid over to a taxpayer’s wife in pursuance of an “agreement to give her the royalties from the sale of the songs” are held to be income to the taxpayer, there being no showing that there was even an effort to make a present gift.
(4) Amount advanced to a partner in 1920 is held to be a personal loan, provision for repayment having been made, which is neither deductible as an expense nor subject to amortization.
(5) Board of Tax Appeals is directed to find some basis of allowance of deduction for entertainment and traveling expenses, the evidence showing that considerable sums were spent although no records were kept. “The Board should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making.
(6) Returns were properly filed on a fiscal year basis, the Commissioner having given permission to file on that basis and there being no satisfactory evidence that the books were not kept on that basis.
(7) Section 226(c) of the 1921 Act, requiring the placing of income on an annual basis in cases of change of accounting period, applies to all net income of the period even though the net income consists of items occurring only once a year.
Affirming Board of Tax Appeals decision, 11 BTA 743, except as to issue (2) (Board’s ruling modified) and issue (5) (Board directed to make some allowance for traveling and other expenses). Board’s rulings are reported at paragraphs noted in the syllabus.
Arthur F. Driscoll and O. Brien, Maleninsky & Driscoll, all of New York City (Holmes, Brewster & Ivins, of Washington, D. C., of counsel; Frank B. Meseke, of New York City, on the briefs), for petitioner. G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, Andrew D. Sharpe, and Randolph C. Shaw, Sp. Assts. Atty. Gen. (C. M. Charest, Gen. Counsel, and Allin H. Pierce, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
Before L. HAND, SWAN, and MACK, Circuit Judges.
L. HAND, Circuit Judge:
HELD: Mother not in partnership
HELD: Play became father’s property
HELD: Royalties to wife are income
HELD: Partner advance is a personal loan
HELD: ESTIMATING LEGITIMATE EXPENSES
HELD: Requested change in accounting enforced
The decision is modified as to the royalties of “Get Rich Quick Wallingford,” and the cause is remanded to make some allowance for the expenses of travel and the like; otherwise it is affirmed.
