Walt Disney Productions v. United States

Walt Disney Productions sued for a tax refund, claiming the investment tax credit under 26 U.S.C. §§ 38 , 46-50 (1970), for the cost of fourteen film negatives produced in 1970. The district court granted the refund, and rejected two government counterclaims. We affirm, in part, and remand for further hearing on one of the counterclaims.

Some understanding of motion picture technology is necessary before we discuss the statute which grants qualified taxpayers an investment tax credit. Although the end product (an exhibition print) will provide both sound and a moving picture when projected, the audio and video portions of a film are separately processed in the initial stages of production. From the filming and editing of the original film negatives, a cut-picture negative (which does not contain sound) is produced. Meanwhile, audio experts record, edit, and mix three different types of sound tapes (music, dialogue, and sound effects), synchronize those sounds with a working print of. the film, and then combine the synchronized and edited tapes into a magnetic master sound tape. At this point, the video (cut-picture negative) and audio (master sound tape) portions of the film are…

Were this a case of first impression, it would be my view that a master tape is merely one of several convenient assembly points for a variety of valuable intangibles, and hold that it did not constitute tangible property entitled to the investment tax credit. Texas Instruments v. United States, 407 F.Supp. 1326 (N.D.Tex.1976). But the circumstances here are indistinguishable from what the majority opinion calls Disney I and Disney II, and under the compulsion of those cases, I must concur.

549 F.2d 576 76-2 USTC P 9606 , 77-1 USTC P 9398 WALT DISNEY PRODUCTIONS, Appellee, v. UNITED STATES of America, Appellant. No. 76-1114. United States Court of Appeals, Ninth Circuit. Aug. 5, 1976. As Amended Jan. 18, 1977. Gilbert W. Rubloff, Atty. (argued), Tax Div., U. S. Dept. of Justice, Washington, D. C., for appellant. John Cooley Baity (argued), of Donovan, Leisure, Newton & Irving, New York City, for appellee. Before CHAMBERS and GOODWIN, Circuit Judges, and SCHNACKE, * District Judge. ALFRED T. GOODWIN, Circuit Judge: 1 Walt Disney Productions sued for a tax refund, claiming the investment tax credit under 26 U.S.C. §§ 38 , 46-50 (1970), for the cost of fourteen film negatives produced in 1970. The district court granted the refund, and rejected two government counterclaims. We affirm in part, and remand for further hearing on one of the counterclaims. 2 Some understanding of motion picture technology is necessary before we discuss the statute which grants qualified taxpayers an investment tax credit. Although the end product (an exhibition print) will provide both sound and a moving picture when projected, the audio and video portions of a film are…