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For the 1997 tax year, petitioner reported total income of
$282,124, of which the following amounts were for music editing
services:
Film Editing Income
Kazaam $75,629
The Associate 71,722
Breakdown 65,694
Moll Flanders 1,063
Other editing income 8,350
Total 222,458
Petitioner's general ledgers for the 1996 and 1997 tax years
reflect amounts received by petitioner from the studios for the
rental of music editing equipment owned by petitioner. For the
1996 and 1997 tax years, petitioner received rental income in the
amounts of $24,400 and $68,100, respectively.3
OPINION
The personal holding company tax was originally enacted in
1934 to remedy the effects of the "incorporated pocket book" and
“incorporated talent” which served to avoid the higher tax rates
imposed on individuals. Cedarburg Canning Co. v. Commissioner,
149 F.2d 526, 528 (7th Cir. 1945), affg. a Memorandum Opinion of
this Court. The purpose of the tax is to force corporations to
distribute personal holding company income through the imposition
of a tax in addition to the ordinary income tax imposed upon the
3 We have been unable to reconcile petitioner’s 1997 ledgers
which show editing income of $222,458 and rental income of
$68,100 totaling $290,557 with petitioner’s tax return which
shows gross sales of $281,746.
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Last modified: May 25, 2011