Walt Disney Productions v. United States of America, Walt Disney Productions v. United States

The government appeals a district court judgment in a tax-refund ease allowing Walt Disney Productions to take an “investment credit” on motion-picture negatives produced in 1962. The taxpayer cross-appeals from that part of the judgment which reduced the basis of the films for purpose of the credit.

The district court held that the films were “tangible personal property” within the meaning of Internal Revenue Code of 1954; that they had a useful life of more than eight years; and that they were depreciable. The films were thus eligible for the investment credit. The Commissioner contends .that the films were not “tangible personal property” within the meaning of Int.Rev. Code of 1954, § 48(a)(1)(A), and that they did not have a useful life of eight years.

The district court, in allowing Disney to take investment credit, did not allow it to take the credit on the full basis Disney used for depreciation purposes, but limited Disney to “those costs which are directly related to the finished negative,” 327 F.Supp. 189, 192-193 (C.D. Cal.1971). This figure was defined by multiplying hourly labor and certain other costs by a fraction the numerator of which was the footage of the…