McA Inc. And Universal City Studios, Inc. v. United States

This appeal presents the question whether unincorporated foreign organizations, jointly owned by a controlled foreign corporation and an employee trust, should be characterized as corporations or partnerships for domestic tax purposes. The Commissioner of Internal Revenue determined that the organizations were corporations, and assessed a deficiency of $868,170 against MCA, an indirect owner of the organizations. MCA paid the deficiency and filed this action for a refund, contending that the organizations are partnerships within the meaning of Treas.Reg. § 301.-7701-2, T.D. 6503, 1960- 2 C.B. 413 . The district court, 502 F.Supp. 838 , acting on cross motions, granted summary judgment for the government. We reverse.

I

In 1970, MCA Inc. and its wholly owned subsidiary, Universal City Studios, Inc. (“MCA”) entered an agreement with Paramount Pictures Corporation (“Paramount”) to form a joint organization for the distribution of films abroad. Pursuant to the agreement, MCA and Paramount formed a Dutch corporation, Cinema International Corporation (“CIC”) and each received 49% of the corporation’s stock. The remaining 2% of the CIC stock was used to fund an entity called…