## Facts

- Enrico Caruso, an Italian citizen, spent substantial time in the United States performing but generally returned to Italy, where he maintained a large estate.
- During 1918–1920, Caruso used leased hotel suites in New York as his U.S. base, married in New York (1918), and had a child born there (1919).
- Caruso consistently filed U.S. income tax returns claiming nonresident-alien status, and that status was not challenged during his lifetime.
- Caruso contracted with the Victor Talking Machine Company (a New Jersey corporation) to sing at Victor’s Camden, New Jersey laboratories so Victor could make phonograph records.
- Under the 1909 contract, Victor agreed to pay Caruso per-record royalties based on Victor’s sales of records bearing his voice.
- Caruso recorded all selections in the United States; Victor sold records both domestically and abroad; royalties (including those tied to foreign sales) were paid to Caruso in the United States.
- The Commissioner assessed additional income taxes on the portion of Caruso’s royalties attributable to records sold outside the United States, treating them as income from U.S. sources.
- Caruso’s estate (through the ancillary administratrix) paid the additional taxes under protest and sued the collector for a refund for tax years 1918–1920.
- The case was tried on stipulated facts before the court (a “jury of one”), and both sides moved for a directed verdict.

## Issues

1. Whether Caruso was a nonresident alien for U.S. federal income tax purposes during 1918–1920.
2. Whether royalties attributable to foreign sales of phonograph records were “income from sources within the United States,” taxable to a nonresident alien.

## Decision

- The court treated Caruso as a nonresident alien for the years at issue.
- The court held that royalties attributable to records sold abroad were income from sources within the United States.
- The court directed a verdict for the defendant collector and denied the estate’s refund claim.

## Legal Principles

- For contingent royalty-like compensation paid under a contract for services, the “source” of income turns on the location of the income-producing activity (the services performed), not the location of later commercial exploitation or sales.
- Royalties paid on foreign sales may constitute U.S.-source income when the underlying services generating the payment obligation are performed in the United States under U.S.-made and U.S.-performed contracts and payment is made in the United States.
- A nonresident alien is taxable on income from sources within the United States; the source analysis focuses on what produced the income, not where the customer transactions occurred.

## Conclusion

The court upheld the assessment of additional taxes because Caruso’s foreign-sales royalties were treated as compensation sourced to his recording services performed in the United States, making the royalties taxable U.S.-source income to a nonresident alien for 1918–1920.


Ingram v. Bowers, 47 F.2d 925 (S.D.N.Y. 1931)