Variety (January 1953)

PICTURES Forly-ievetah pAfZIETY Anniversary Show ’s Jousts With Uncle Sam; Constant Tangles On Taxes Veteran Theatrical Attorney Reviews Present Day Legalities as Applied to Tiffs With Government’s Tax Minions By ARTHUR F, DRISCOLL (O'Brien, Driscoll & Rajtery) Arthur F. Driscoll Showfolk are universally known for their generosity and warm-heartedness. The magnificent response of en- tertainers to the fund raising, campaigns for the Heart Fund, the Damon Bunyon Fund, Cerebral Palsy, the Will Rogers Hospital and for many other philanthropic and charitable organiza- tions and drives is a source of great pride to their fellows in the industry. The interest that entertainers and art- ists display in the successes of their brothers and sisters is well known. Thus we would not ordinarily be surprised to learn of the intense inter- est displayed in the legal adventures of Roy Rogers, Gene Autry and. Other entertainers. Nor would we fee sur- prised to find actors, entertainers, authors, producers and others keep- ing a file of clippings on the contracts of Milton Berle, Walter Winchell, or about tlie successes and failures of Kathleen Winsor, Amos ’n’ Andy and others in their legal jousts with the U. S. Government on the battlefield of taxation. Indeed many of us follow with Inordinate interest the departures of high salaried per- sonalities from these shores and although their presences will be missed, we are happy to learn that their. stay abroad is to be more than 510 days. . It is not, however, mere curiosity and affection which prompts such close scrutiny of the reported affairs of such public figures of the entertainment world. Recent developments have created new tangles in the legal under- brush for those of us who act as counsel for the vast world of entertainment in the fields of television and taxation.. Television, because we do not yet know what the final rights and obligations will be' in the sale of old movies for television, and since we are well aware of the tremendous financial rewards which this infant industry holds out to those it favors. Taxes, because most show people are in the unfortunate position of realizing the economic re- wards of their artistic successes in a few short years which results in their retaining, after taxes, a far smaller por- tion of their earnings than if they had been able to spread their income over their artistic lifetime. % elevision Tangles Tax Tangles more so than in most other fields, realize their peak of financial success in a relatively few years. This results gains provisions of the statute. For example, until the Revenue Act of 1950, the collapsible corporation was com- mon in the motion picture industry as it was in the build- ing, trades. This enabled stockholders in collapsible cor- porations to translate what otherwise would be ordinary income taxed at higher rates into income taxable at the lower capital gains rates. This likewise has caused authors to seek for themselves the tax treatment reportedly accorded General Eisenhower on the sale of his war memoirs and that accorded Charles Correll and Freeman Gosden (Amos ’n’ Andy) on the sale to CBS of their rights in the radio show of that name, and to avoid the pitfalls which appeared in the path of Jack Benny when he attempted a similar transfer. The taxation of entertainers, artists and other show- . folk, however, is another matter. The constant search for ways of minimizing taxes and the concurrent Govern- mental attempts to close avenues of tax reduction give rise to never ending tax problems and solutions. The scheme of Federal income taxation is keyed pri- marily to the concept of an annual income period. Un- fortunately this concept does not conform to the earn- ings history of most actors, authors and other artistic peo- ple. Ordinarily, people in the entertainment world; Authors and • Agents I have read and re-read many times the opinions in the cases involving the exhibition on television of the Gene Autry and Roy Rogers motion pictures. I was anxious to discover, why Rogers and Trigger’s old exploits could not appear on the; TV Screens of the nation, while there was no restriction a$ to Autry’s. Of course, the last word has not yet been spoken and appeals are pending to higher courts arid it may be some time before the mat- ter is .finally and conclusively settled. Only as late as December a court held that the author of ‘‘The Last Mile” could not prevent the television showing of his films even though ^ his contract specifically provided that it could not be shotvn on television without his consent. This, too, will in all probability be appealed to.a higher court. How far will the courts go in preventing the televising of entertainment provided for the additional entertain- ment of sport fans during time-outs in the sporting ac- tivities? The highest court of New York refused to allow n performer to recover for the unauthorized telecast of his performance during the half-time of a professional foot- . ball game. Similarly it has been decided that aquatic stars performing at a benefit show could not prevent the telecast of their performances even though their agree- ment with the promoter of the event did not authorize such a showing, and even though the motion pictures of their performances which were telecast were taken with- • sut their knowledge or consent On the olher hand, Jack Sharkey was held to have a right to prevent a showing on a commercial program, “Greatest Fights of the Century,” a fight in which he had participated many years before. The Guilds and unions have not been slow to awaken to the potential of television. The AFM and the Screen Actors Guild have announced policies with respect to tele- vision showing of theatrical films. The Society of Inde- pendent Motion Picture Producers has been giving care- ful study to the whole field. Thus! whilg.$he development of legal ddetrines in connec- tion with the televising of old films is still in its infant stage, and although it is of extreme importance to large numbers of people in show business, it is in some respects a ! mited and narrow field. Certainly, since the problem first arose, careful attorneys have drawn their contracts ‘ so as to eliminate the problem insofar as it is possible to do so. The problem to a large extent arises only in con- nection with old motion pictures, old scripts and the like, and it may be expected that eventually the present con- flicting doctrines will be resolved into a coherent, under- standable body of rules. Likewise old contracts under which a playright conveyed the motion picture rights to his play and retained the dramatic rights create an allied problem. ( The question arises whether a kinescope view- ing of a live television presentation conflicts with the grant of motion picture rights. This problem has not yet been resolved and may be expected to grow in the future. ./It was vitally important for authors to know when they could successfully sell their film rights at a capital gain rate as did Kathleen Winsor on her pre-1950 sale of the motion picture rights to her book, “Forever Amber,” as was held in an opinion handed down as recently as June, 1952. Many courts had previously refused to treat the sale of motion picture rights as a sale subject to capital gain taxation. The amendment in 1950 of the Revenue Act, however, provides that copyrights, literary, musical com- positions or similar property are not entitled to be treated as capital assets and therefore a sale of such an asset ap- parently would not now result in taxation at capital gain rates. On the other hand, the sale of General Artists .Corp. to MCA of General, Artists’ agency contract with Frank Sinatra was held in a 1952 Tax Court opinion to result in ordinary income for General Artists and not a capital gain, the decision being based on the doctrine that an artist’s contract with an agency is not a capital asset. In 1950, Congress enacted, effective for years subsequent to 1949, a provision permiting individuals to take ad- vantage of favorable capital gain rates in the purchase and sale of stock of their employer. To avail themselves of this provision, certain narrowly defined limitations must be observed. This provision permits capital gains in many situations where the entertainer is able in his bar- gaining to obtain restricted stock options. Not too long ago Time magazine reported that Bing Crosby bought 20,000 shares of stock in a corporation engaged in pro- ducing a frozen juice concentrate at an extremely nominal price and agreed to advertise the product. If the stock rose in value as a result of Crosby’s radio plugging and he then sold the shares for a profit, his profit would be taxed as a capital gain. t Time stressed the value of this type of arrangement to entertainers and pointed out that the stock at the time of its report was selling at approxi- mately 70 times the price paid by Crosby. Berle and Winchell The current vogue for spreading tax burdens is the so- called deferred compensation contract, such as the con- tracts which Milton Berle and Walter Winchell have re- cently been reported to have signed. The deferred com- pensation contract generally speaking provides for a fair- ly constant salary payment over a long period of years so that the tax burden will not be particularly heavy in one or several years. At the present time the law is not entirely settled with respect to deferred compensation con- tracts but it is generally thought that if carefully drawn the desired end may be achieved. A provision inserted in the tax law which especially benefits authors and playwrights is that section which permits the spreading of compensation when the services for which the payment is made were performed over 36 months or more and where at least 80% of the total pay- ment for the particular services is received in one taxafele year. In one aspect, it accomplishes the purpose of a deferred compensation contract in that it allows the spreading of income for tax purposes over a period of years. Royalties on most works of fiction are earned in one year. To avoid the unattractive tax results of such an event, royalty income ought to be spread by contract over a reasonably long period of time. For example, if an author anticipates that he will receive $50,000 that year in r.oyafti$s, Jie would be far better off to contract for a '• maximum payment of $5,000 for 10 years. In many situations showfolk may find their total tax burden would be substantially less if a family partnership were used so that the total income is spread among all members of the family rather than being taxed to one 1 person. A recent amendment of the Revenue Act liberal- ized the tax treatment of family partnerships and should give impetus to their growth. The most popular current method of reducing taxes is that followed by performers, producers and directors who journey to countries outside the United States and its possessions. Provided the statutory requirements are met, income earned for their services in the foreign countries need not be included in income subject to United States taxation. There has been recent agitation for a change in the law to eliminate this tax saving^ppportunity but thus far entertainers, such as Robert Taylbr and Mary Martin, who remain abroad for at least 510 full day a in an 18- rnonth period, or who actually establish residence in a for- eign country, are entitled to the full benefits of this exemption. Those seeking to avail themselves ot this spe- cial benefit ought to calculate carefully the 510-day period for it will be nsxt-to-impossible for them to establish their bona fide residence in a foreign country. Similarly, a special tax benefit is extended to U. S. citizens who reside for the entire taxable year in Puerto Rico and whose income is derived from sources within Puerto Rico, This is the provision under which. Ed Gardner^ “Duffy's Wednesday., January 7, 1955 You Can’t Teach the Public, Just Entertain ’Em By A. E. DAFF (Executive V.P., Universal Pictures) Our business es to amuse; not to educate. This may Seem a'bit commonplace andf'obvious. Nevertheless, I shall discuss the point on the theory that the common- place is also our business. I trust that my continent will not be misconstrued by some critical and academic minds who tout the unfa- miliar and say that we are losing audi- ences because we are stereotyped. These good souls take the position that it is our job to teach the public just what kind of pictures it should see, under what auspices it should see them, and how often. Were these pundits not so keenly interested in the medium of motion pictures, we would facetiously dismiss themes “highbrows” * and let it go at that. N^But they are ingenuous and don’t care how much money we lose as long as we make a picture to their liking. The simple point is that the public knows when it wants to be elevated. To para- phrase Tolstoy, the possibility of any art surviving de- pends tipon how well it is received by the masses. The motion picture version of “Hamlet” played to mass audiences. I think one reason for this success was due to the fact that we didn’t try to teach the public Shake- speare. We suggested that “Hamlet” would appeal to any real movie fan. . Alfred E. Daff We sometimes, in handling off-beat pictures, fedl that now is our chance to educate the public to a different sort of picture. Instead of realizing that all pictures can be presented as entertainment, we let our “culture complex” take over and for the moment we say: “We’ll teach you a thing or two about motion pictures.” | The Public Is the Teacher As a matter of fact, the public is constantly teaching us that it is the teacher. It forms its judgments on experi- ence and when we repudiate its experience we prove we are the inexperienced ones. It is my feeling that all great art is evocative of the familial'. There are a limited number of plots; a ceiling on subject matter that is salable. I venture to say that the circulation of any newspaper would not be helped if the familiar-comic strip would be converted overnight into an esoteric format, completely strange to the readers. The point is that the public makes our stars by liking them and finding in them something that represents its pleasant dream world. Historically, heroes follow the same pattern. The same with heroines. What we must not overlook is the fact that mores and cultural patterns develop, not overnight, but traditionally. The Statler Hotels did very well with the idea that the “customer is always right.” I think, generally speaking, that this is true in our business. The customer wants to feel before going to a movie that he will be amused. He has his own problems and doesn’t like to see his dream world cluttered up with them. If I may add a parochial note, let me say that we at Universal are trying to learn from the public. We are committed to the idea that the public acceptance of our pictures is what makes us and the exhibitor stay in the Black. t So we ask our personnel all over the world to not only rub shoulders with the public but also to rub minds with them. The motion picture is a great medium reflecting the blessings of democracy. The people ultimately win be- cause they inevitably are the teachers. Several years ago Universal galvahized a. grassroots policy. We asked our sales force to let us know what their particular coriimunities liked best in pictures. We have received a consistent flow of information. And what do you think? The answers all added up to one word: Entertainment. Tavern” is produced. Like benefits are available to resi- dents of U. S. possessions, other than the Virgin Islands and Puerto Rico. For example, recently published regu- lations hold that a U. S. citizen who resides in Guam is in their retaining, after taxes, less net income than if the total amount of their earnings during their lifetime were spread equally over their business life. Hence, the con- stant attempt to seek ways of lessening the burden of taxation while remaining within the letter of the law. Tha lower rate of taxation of capital gains results in a constant effort to channel income received into the capital not taxable on income earned by him from sources within Gaum. An interesting problem of the same general type arises in. the sale of the works of an author who is neither a. resident, nor a citizen of the U. S. P. G. Wodehouse, for example, sold a story to the Saturday Evening Post. Mr. Wodehouse contended that a portion of the sale price was not subject to U. S. income tax since the Saturday Evening Post circulated in Canada, and part of the sale price could be attributed to the Canadian circulation of the magazine. The Tax Commissioner resisted the con- tention, and the Tax Court determined that a portion should be allocated to U. S. circulation of the magazine and the balance to sources outside the United States and hence not taxable. The business of entertainment is .dynamic. It is con- stantly adjusting itself to innovations in technique, per- sonnel, .methods of production, exhibition, distribution, and exploitation in order to meet changes in public taste, in technological development, and in the tax law. Sousa on Jazz Always liked John Philip Sousa’s remark on jazz: “Jazz will endure just as long as people hear it through their feet instead of tlicir brains.” George Jean Nathan*