## Facts

- Irving Berlin Music Corporation was incorporated in 1946 and was wholly owned by songwriter Irving Berlin.
- Berlin personally owned copyrights in approximately 1,000 compositions; hundreds remained actively published during the relevant tax years.
- Berlin and the corporation entered into a publishing/licensing arrangement, superseded by a 1960 agreement, under which the corporation was the exclusive licensee/publisher for Berlin’s compositions.
- The 1960 agreement also designated the corporation as Berlin’s “exclusive agent” to issue mechanical, broadcast, and performing-rights licenses to music users.
- The corporation’s revenue largely came from licensing receipts associated with exploitation of the compositions, with the corporation retaining a publisher’s share calculated as a portion of amounts paid for the right to use the works.
- The IRS determined the corporation was a personal holding company and assessed personal holding company (PHC) tax and interest for fiscal years ending January 31, 1965 and January 31, 1966.
- The corporation paid the assessments and filed a refund suit; the parties stipulated the facts and filed cross-motions for summary judgment.

## Issues

1. Whether the corporation’s retained share from performing-rights and related licenses for Berlin’s compositions constituted “copyright royalties” and therefore PHC income under the Internal Revenue Code.
2. Whether contractual “agency” language and Berlin’s retention of copyright ownership prevented the corporation’s receipts from being treated as copyright royalties for PHC purposes.

## Decision

- The Court of Claims granted the United States’ motion for summary judgment and denied the taxpayer’s cross-motion.
- The court held that the amounts retained by the corporation from the licensing of Berlin’s compositions were “copyright royalties” to the corporation within the PHC provisions.
- Because the corporation’s income fell within the statutory category of copyright royalties, the PHC tax assessments were sustained and the refund claim was rejected.

## Legal Principles

- In applying PHC provisions, “copyright royalties” is construed in a tax-law sense based on the economic character of the receipts, not on technical copyright-law concepts of proprietary title.
- A corporation may receive “copyright royalties” for PHC purposes even if its sole shareholder retains copyright ownership, where the corporation’s compensation is structured as a share of licensing royalty flows.
- Contractual labels (such as “exclusive agent”) do not control tax characterization when the substance shows royalty-based compensation tied to exploitation of copyrighted works.
- The PHC rules are applied to prevent closely held corporations from avoiding shareholder-level tax by channeling passive, royalty-type income through the corporation.

## Conclusion

The court treated the publisher-corporation’s retained percentage of licensing receipts for its shareholder’s compositions as copyright royalty income, making the corporation subject to the personal holding company tax for the years at issue despite the “agency” characterization and the shareholder’s continued copyright ownership.


Irving Berlin Music Corp. v. United States, 487 F.2d 540 (Ct. Cl. 1973)