Transamerica Corporation v. United States

This is an appeal by Transamerica from a judgment disallowing a refund of income taxes attributable to its former subsidiary, United -Artists Corporation (“UA”), for the production of films that it acquired and distributed for exhibition. The Internal Revenue Service (“IRS”) assessed income tax deficiencies for depreciation disallowed for the years 1971, 1972, and 1973. Transamerica paid the additional tax and sued for a refund. The sole issue on appeal is the interpretation of a formula established in Rev.Rul. 60-358 for the depreciation of the cost of production of television and motion picture films. The question of interpretation focuses on the proper treatment of production costs that are paid as a percentage of the income earned from the exhibition of the films. The district court entered summary judgment for the Government, disallowing the refunds. 670 F.Supp. 1454 . We reverse.

Jurisdiction in the district court was based on 28 U.S.C. § 1346 (a)(1) and our appellate jurisdiction is based on 28 U.S.C. § 1291 .

I.

For the years in issue, Transamerica owned UA, which contracted for the production of motion picture films and distributed them for exhibition. The income tax…

dissenting:

This appeal involves the proper interpretation of the IRS’s formula for calculating the *1373 depreciation of the cost of production of a motion picture film. The majority holds that a taxpayer can include participations and residuals that have yet to be incurred in the cost basis of a film when calculating the amount of depreciation that can be deducted in a given year. Because I disagree with this conclusion, I respectfully dissent.

It is well established that liabilities which can only be calculated on the basis of future events are contingent and cannot be included in a cost basis. See, e.g., Columbus & Greenville Ry. v. Commissioner, 42 T.C. 834, 846 , 1964 WL 1354 (1964), aff'd, 368 F.2d 294 (5th Cir.), cert. denied, 385 U.S. 827 , 87 S.Ct. 61 , 17 L.Ed.2d 64 (1966); Lemery v. Commissioner, 52 T.C. 367, 377-78 , 1969 WL 1536 (1969), aff'd, 451 F.2d 173 (9th Cir.1971). I see no reason why this principle should not control in the instant case. Under the terms of the relevant agreements, Transamerica was only required to pay participations and residuals if the films in question made a profit. In this sense, the participations and residuals are contingent…

999 F.2d 1362 72 A.F.T.R.2d 93 -5403, 93-2 USTC P 50,388 TRANSAMERICA CORPORATION, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. No. 90-16674. United States Court of Appeals, Ninth Circuit. Argued and Submitted Dec. 10, 1991. Submission Withdrawn Feb. 5, 1992. Resubmitted Feb. 26, 1993. Decided July 7, 1993. Cameron W. Wolfe, Jr., Orrick, Herrington & Sutcliffe, San Francisco, CA, for plaintiff-appellant. Kenneth W. Rosenberg, Tax Division, U.S. Dept. of Justice, Washington, DC, for defendant-appellee. Appeal from the United States District Court for the Northern District of California. Before: HUG, HALL, and O'SCANNLAIN, Circuit Judges. HUG, Circuit Judge: 1 This is an appeal by Transamerica from a judgment disallowing a refund of income taxes attributable to its former subsidiary, United Artists Corporation ("UA"), for the production of films that it acquired and distributed for exhibition. The Internal Revenue Service ("IRS") assessed income tax deficiencies for depreciation disallowed for the years 1971, 1972, and 1973. Transamerica paid the additional tax and sued for a refund. The sole issue on appeal is the interpretation of a formula established…