Boulez v. Commissioner - 83 T.C. 584 (1984)

Rule:

In order for a payment to constitute a royalty, the payee must have an ownership interest in the property whose use generates the payment.

Facts:

Petitioner, Pierre Boulez, was a citizen of France, and during the calendar year 1975, was a resident of the Federal Republic of Germany. For the taxable year 1975, petitioner was a nonresident alien of the United States for Federal income tax purposes. Pursuant to the contract entered into by the petitioner with CBS Records, he conducted various performances with the Cleveland Orchestra, the New York Philharmonic, and others in the recording of musical compositions for CBS Records. None of the recordings were from “live performances.” They were all performances arranged solely for purposes of recording. As the result of performances conducted by petitioner under the terms of the contract, CBS, Inc., paid to petitioner’s agent the sum of $ 39,461.47 in the year 1975. The agent paid the sum to the petitioner in 1976. In his 1975 U.S. nonresident alien income tax return, petitioner disclosed the receipt of such amount, but excluded it as not being subject to U.S. income taxation. Petitioner reported the identical amount in his 1976 income tax return filed with Germany as includable income subject to the German income tax, and petitioner paid German income tax thereon. The respondent, Commissioner of Internal Revenue, determined that the petitioner had a tax deficiency in his income tax return. Petitioner sought review of the decision, arguing that the payments to him by CBS, Inc. were not taxable by the United States, because they were "royalties" within the meaning of the applicable treaty between the United States and Germany. 

Issue:

Were the payments received by the petitioner considered as “royalties” within the meaning of the applicable treaty between the United States and Germany? 

Answer:

No.

Conclusion:

The court concluded that the parties intended a contract for personal services rather than one for the sale or licensing of any property rights which the taxpayer might have had in the future. The court determined that the existence of a property right was fundamental for the purpose of determining whether royalty income existed. The court concluded that the taxpayer had no copyrightable property interest in the recordings he created. The court held that the taxpayer had entered into a contract for the performance of personal services. The court ruled that the commissioner was correcting in taxing his income.