Betty Finney and Edward F. Finney v. Commissioner of Internal Revenue

Petitioners are husband and wife, who, under the community property law provisions, filed separate tax returns for the year 1945. The two cases were consolidated in the Tax Court and petitioners filed herein a joint petition for review.

The Tax Court held petitioners liable for deficiencies in these returns which deficiencies rested on three separate items in petitioners’ 1945 returns.

These three items may be stated as follows:

1. Did petitioners suffer a loss of $5,300 in 1945 in connection with the film entitled “Strange Holiday”?

2. Did petitioners suffer a loss of $5,000 in 1945 in connection with the film entitled “White Fury”?

3. Was $10,824 received in 1945 from the film “Sensations of 1945” ordinary income or a long term capital gain?

The first two questions will be considered together. The petitioner, Edward F. Finney, was engaged in various phases of the motion picture industry, including the production, direction, purchase and sales of motion pictures. In 1943 he purchased the film, “Strange Holiday”, for $4,000. Petitioner thereafter expended $6,300 for actors, labora tory work, re-editing and kindred production expenses. In their separate income tax returns for…