Rainger v. Commissioner , 12 T.C. 483 ( 1949 )

Estate of Ralph Rainger, Deceased, Elizabeth Rainger, Executrix, Petitioner, v. Commissioner of Internal Revenue, Respondent

Rainger v. Commissioner

Docket No. 8995

United States Tax Court

12 T.C. 483; 1949 U.S. Tax Ct. LEXIS 234;

March 30, 1949, Promulgated

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Decision will be entered under Rule 50.

1. Decedent transferred all funds held as community property to the separate bank account of his wife in order to avoid his own generosity in making unfortunate loans and injudicious investments. Since there was no agreement to transmute community property to separate property, held, management and control of the property by the wife is insufficient, standing alone, to effect such transmutation.

2. A decree of the state court in inheritance tax proceedings purporting to decide that community property was transmuted to separate property of the husband and wife held as tenants in common, held, under facts, to be, in effect, a consent decree not deciding a real controversy on its merits, and not binding upon this Court.

3. Decedent, a noted song composer, wrote his compositions for movie studios under contracts, which reserved to decedent the nondramatic performing rights in the compositions. These performing rights were assigned under agency contracts to the American Society of Composers, Authors and Publishers. Held, the decedent owned a vested interest in these nondramatic performing rights which passed to his widow at death.

4. Upon the facts, held, petitioner actually expended $ 50,000 reasonably required for the support of decedent's dependents during settlement of the estate, as allowed by the laws of the state having jurisdiction of the estate.

Harry J. Miller, Esq., and George T. Altman, Esq., for the petitioner.

H. A. Melville, Esq., for the respondent.

Kern, Judge.

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KERN

Five issues were raised in connection with the determination of deficiency in estate tax in the amount of $ 35,804.96. Petitioner originally raised the issue of the constitutionality of the 1942 amendment to section 811 (e) (2) of the Internal Revenue Code. The proceedings were then placed upon the reserve calendar, pending decisions of the Supreme Court of the United States in Fernandez v. Wiener, 326 U.S. 340">326 U.S. 340, and United States v. Rompel, 326 U.S. 367">326 U.S. 367. Neither at trial nor in brief has petitioner attempted to distinguish these cases. We, therefore, assume the abandonment of this issue. Another issue concerning the deduction of attorney fees in excess of $ 1,249.70 has been reserved and will be determined in a recomputation under Rule 50. See also Rule 51, Rules of Practice before the Tax Court of the United States, Revised to December 15, 1948.

The issues remaining for decision are: (1) Whether the community property of the deceased and his wife was transmuted prior to decedent's death into separate property held as tenants in common so as to prevent its inclusion in the entirety in the gross estate within the meaning of section 811 (e) (2), Internal Revenue Code; (2) whether the decedent owned any right, title, or interest includible in his gross estate in and to certain musical works, including the right of public performance thereof, the rights, royalties, and license fees, and the rights of copyright and renewal, together with any membership rights in the American Society of Composers, Authors and Publishers; and (3) whether respondent erred in disallowing deductions from the gross estate in excess of $ 24,000 for support of decedent's dependents pending the administration of decedent's estate. These three issues will hereinafter be referred to as (1) the separate community property issue, (2) the Ascap issue, and (3) the support issue.

The question has been raised in connection with the first two issues whether this Court is bound by certain orders of the state court administering decedent's estate. Respondent has affirmatively pleaded estoppel as an alternative to the first issue.

The evidence has been presented by stipulation and by oral and documentary evidence.

FINDINGS OF FACT.

The decedent was Ralph Rainger, a noted composer of popular music. His widow, Elizabeth Rainger, whom he married in 1927, is the petitioner herein, representing the estate as sole executrix. The decedent and his wife owned no property of present import prior to 1930, when they moved to California, a community property state. The decedent remained a resident of California until he was killed in an airplane collision near Palm Springs, California, on October 23, 1942. He was also survived by three minor children, whose ages were at the time of his death, respectively, eight years, five years, and eighteen months. The Federal estate tax returns were filed with the collector of internal revenue for the sixth district of California at Los Angeles.

From early 1930 until his death the decedent was employed by Paramount Studios, Inc., or its predecessor corporations, and by Twentieth Century-Fox Film Corporation. The decedent composed approximately 150 songs during the course of his employment with these major studios, which were used in connection with approximately 60 shows or motion pictures.

In 1930 the decedent applied for membership in the American Society of Composers, Authors and Publishers, hereinafter referred to as "Ascap." He was elected to membership in Ascap in 1931.

Ascap, a voluntary unincorporated association organized under the laws of New York, is a society of authors, composers, and publishers who have banded together for the purpose of creating an agency to license the entire repertoire of songs belonging to its members to various establishments, persons, and radio broadcasting systems, who or which publicly perform music. Ascap's repertoire of songs contained 75 to 80 per cent of all musical works of fine entertainment value.

Prior to the existence of Ascap, anyone who desired to publicly perform a musical composition was forced to secure the right to play each particular composition from the individual author, composer, and publisher for each performance. Since the creation of Ascap the entire repertoire is usually licensed for one year. The income derived from these various licensing agreements is then split two ways. One-half is paid to the publishers and the other half is divided between the various authors and composers in accordance with a complicated classification system which pays the author or composer according to the number, the nature, the character, the prestige of his songs included in the society's catalog, as well as the length of time the author or composer has been a member, and the publicity and vogue of each composition. By the time of the decedent's death he had reached the second highest classification and received quarterly payments from Ascap of an amount in the neighborhood of $ 2,000 each.

To be eligible for membership in Ascap the decedent had to have published not less than one work, composition, or writing, in addition to regularly practicing the profession of writing music. The decedent listed ten songs in his application and subscribed the following provision: "The applicant represents that there is in existence or effect no assignment, direct or indirect, of non-dramatic performing rights in or to any of the works listed herein, except as such may be in existence or effect with members of the said society."

The decedent's agreement with Ascap provided:

* * * *

The Owner sells, assigns, transfers, and sets over unto the Society for the term hereof, the entire exclusive right of public performance * * *, in each musical work:

Of which the Owner is a copyright proprietor; or

Which the Owner, alone, or jointly, or in collaboration with others, wrote, composed, published, acquired or owned; or

In which the Owner now has any right, title, interest or control whatsoever, in whole or in part; or

Which hereafter, during the term hereof, may be written, composed, acquired, owned, published or copyrighted by the Owner, alone, jointly or in collaboration with others; or

In which the Owner may hereafter, during the term hereof, have any right, title, interest or control, whatsoever, in whole or in part.

* * * *

The representative contracts between the decedent and the moving picture studios each provided that the musical works written pursuant to the employment should become the property of the studio. The contracts also provided for the payment of salary and royalties according to the use made of the music. The Paramount contract specifically excepted the performing rights (which were the subject matter of the contracts with Ascap) from its provisions. The Twentieth Century-Fox Film Corporation contract specifically provided that it was subject and inferior to the rights of Ascap with respect to the artists' compositions. In case Ascap should surrender any such rights they were specifically reserved to the artist and not to the studio.

Certificates of registration for the various songs written by the decedent were issued by the Federal Register of Copyrights to the studios.

The articles of association of Ascap provide that membership ceases at death. However: "Any person who has acquired, by will or under the law, the right, title and interest of a deceased composer or author in any musical works, including the right of public performance thereof may be elected to membership * * *." Up to and including 1944, 242 members of Ascap have died. Ascap has issued 204 posthumous memberships. Of the 38 memberships where no successor was elected, the society did not act with reference to 19 because the musical compositions involved were not deemed of sufficient value. In the case of the other 19, the parties in interest could not agree with themselves or with Ascap. Ascap is interested in the posthumous memberships in order to insure that the compositions remain in the society's catalog. After decedent's death, his widow executed agreements with Ascap relating to decedent's musical compositions similar to those executed by decedent, and became a member of Ascap. Thereafter she received the distributions from Ascap which decedent would have received had he been living.

Petitioner included in the decedent's gross estate for estate tax purposes only the decedent's salary and royalties due from Ascap and the movie studio contracts at the time of death. Not included in the gross estate was any amount representing the value of any interest in musical compositions or rights under the agreements with Ascap which the decedent might have owned at death.

The decedent, in his lifetime, received in excess of $ 50,000 from Ascap. His yearly salary receipts progressed from approximately $ 10,000 to in excess of $ 66,000 from the movie studios. He and his wife felt that all he earned belonged one-half to each of them and accordingly his income was deposited in a joint bank account, with the exception of a period between 1938 to 1941 and again in 1941 until his death in 1942.

Prior to 1938 the decedent made a number of bad loans and injudicious investments. These expenditures were directly attributable to the decedent's generosity which rendered him unable to refuse the requests of certain friends and acquaintances. In order to alleviate this situation, the entire funds were shifted in 1938 to the separate bank account of the wife. The funds were replaced in a joint bank account for a short time in 1941, but additional bad loans illustrated that the unfortunate propensity had not been cured. Accordingly, in 1941 the funds were again placed in a separate bank account belonging to the wife.

During the time when the funds were in the separate account held in the wife's name, she issued checks to pay all community expenses, such as food and clothing. She also issued checks in the amount of $ 2,888.70 on two life insurance policies insuring the life of the decedent, and $ 45,000 on an annuity policy wherein the decedent was the chief annuitant. In July of 1942 the decedent and his wife purchased a home in Beverly Hills, California. The title to this property was taken in the name of the decedent and his wife as joint tenants, which joint tenancy was declared to be terminated after the death of the decedent by a court order of December 6, 1943. The purchase price of the home was $ 17,500, of which the wife paid $ 4,175 from the bank account which was then in her separate name. The balance was secured from a Federal Housing Administration loan. During the existence of the wife's separate account the decedent either had no separate account or did not have a sufficiently large account to make payments on his insurance or annuity policies.

The separate income tax returns of the decedent and his wife each included one-half of the decedent's income and one-half of all deductions. The estate tax return of January 1944, and the amended and supplemental return of May 1945, likewise involved an equal division of the property of the decedent and his wife. Notes appended to the income tax returns for 1939 and 1940 claimed the division as a prerogative of the community property system. The other income tax returns made the division without making any representations as to the nature of property holdings. The estate tax return first listed a division of property on the community property basis. By amended and supplemental estate tax return, the division of the property was sought without claiming that the property was held by the community.

The decedent's will was admitted to probate before the Probate Division of the California Superior Court on November 19, 1942. The state inheritance tax appraiser filed his report on May 9, 1944. This report, which was filed in the Superior Court of California in which the administration of decedent's estate was pending, alleged that decedent left property taxable under the inheritance tax laws, as follows:

After-Discovered Property: The following property was not listed in the inventory. Value of domestic and foreign copyrights owned by decedent including renewal rights and also including performance rights -- as evidenced and affected by contract with American Society of Composers, Authors and Publishers. * * *

In the written objections filed by the executrix in this report in the Superior Court, the executrix denied "there was or is any alleged or other after-discovered property, or domestic or foreign copyrights or renewal rights, or performance rights, or any part or parts thereof, as described in the report or otherwise." In amended objections, the executrix alleged that if the court should find that the decedent held any such interests, they were owned by decedent and his wife as tenants in common and not as community property. This latter allegation was not made until after the beginning of the Federal tax controversy. Hearings were held by the California Superior Court on the issues thus drawn, which lasted for five days in January and February 1945. The issue of whether there existed, at the time of decedent's death, the property described in the report of the inheritance tax appraiser was completely and thoroughly litigated.

There was no real controversy between the parties as to the separate community property issue. In opening statements the attorney for the state controller appearing in support of the inheritance tax appraiser's report objected to the belated raising of the separate community property issue. The attorney for the estate advised the court that the issue made no difference for inheritance tax purposes, but that the issue did make a difference for Federal estate tax purposes in that, unlike the California law, the Federal authorities comtemplated taxing the entire community property by virtue of the new Internal Revenue Code passed two days before the death of the decedent. The widow and a bank manager testified concerning the separate bank accounts as hereinbefore set forth. There was no cross-examination, no documentary evidence, no opposing claim, and no argument on the merits. The complete opening statements and arguments on this issue are set forth at length as a footnote. ¹

On March 21, 1945, the Superior Court entered its order fixing the inheritance tax and determining the issues raised in connection therewith. This order found, in addition to the finding that the decedent and his wife each owned one-half interest in separate property, that they owned an interest "in property held for the production of income, and which property consisted of the contract and membership rights in connection with contracts between the decedent and the American Society of Composers, Authors and Publishers, * * * together with the present value and worth, as of the date of the decedent's death, of future royalties and income from the said Society and in connection with the said contracts; and the right, title and interest in musical works composed by the decedent during his lifetime, including the right of public performance thereof, the right to royalties, income and license fees thereon, and the copyrights, renewal rights and performance rights in connection with said musical works, and together with the present value and worth, as of the date of the decedent's death, of future royalties and income therefrom." The court placed a value of $ 20,000 on decedent's undivided one-half in this property, and a value of $ 124,627.40 on decedent's one-half interest on all of the property owned by him and his wife.

Decedent, at the time of his death, possessed certain property rights in and to musical compositions which passed upon his death to his widow and had a value, as of the time of death, of $ 50,000. ² This property was the community property of decedent and his wife.

On June 23, 1945, the widow, as executrix and sole devisee, filed a petition with the state court which recited the order of March 21, and asked for authority to make a partial distribution of the estate. On August 10, 1945, an amended petition for partial distribution was filed. In both petitions it was recited that all of the assets of the estate were available for distribution, that the appraised value of those assets (including the interest of both decedent and his widow) was in the total amount of $ 209,254.79, and that the reasons why only a partial distribution was sought ($ 37,096.49 in the first petition and $ 13,726.49 in the amended petition) were the dispute with the Commissioner of Internal Revenue as to estate tax liability and a claim on behalf of the estate as to certain real estate, which claim was later abandoned by the estate. The dispute with the Commissioner of Internal Revenue referred to related to that involved in the instant proceeding involving a deficiency of $ 35,804.96. In ex parte proceedings, the court, on August 10, 1945, found the allegations of the amended petition to be true and entered a decree of partial distribution as requested. This decree also found, pursuant to the petition, that the time for filing, or presenting, claims against the estate had expired, and that all uncontested claims had been paid.

Under Court orders of December 3, 1942, and October 4, 1943, the executrix was ordered to pay herself $ 1,200 a month, as family allowance, from the death of the decedent until further order of court. On June 14, 1945, this family allowance was raised to $ 1,600 a month, to continue until further notice. These orders were entered ex parte upon petitions filed by the widow.

From the date of death to January 1, 1947, the executrix paid herself $ 42,800 at irregular intervals. In January and February of 1947, the executrix paid to herself, by eighteen checks, the total sum of $ 28,800.

Between the date of death and February of 1947, the widow paid out a total approximately equal to the amount thus received from the estate. A large part of these payments was for food and clothing for herself and the three children. There were also numerous expenditures for wages of employees and service and repair bills, and some payments to complete the furnishing of the home, purchased a short time before the death of the decedent, which was in the process of being repaired, remodeled and improved.

The family had established a high standard of living, which the widow felt should be maintained after the death of the decedent. The three minor children required special educational attention and extensive medical care, including surgery for a cross-eyed condition called strabismus. Considerable expenditures were also made for their dental care, including the straightening of their teeth. At the time of the death, the family maintained three servants; an upstairs maid, a cook, and a governess. Since the decedent's death, one servant has been dispensed with. Occasionally one of the two remaining servants was dispensed with. In addition to these servants, the services of a gardener and a laundress were required. Some payments were made for the support of the parents of the decedent and the mother of the widow.

Of the amounts allowed by the state court pending the administration of the estate for the support of decedent's family and actually expended by the estate, the sum of $ 50,000 was reasonably required for the support of dependents during the settlement of the estate.

OPINION.

By amendment effective October 21, 1942, (two days before the death of decedent) section 811 (e) (2) of the Internal Revenue Code³ required the inclusion of all community property in the gross estate of the decedent.

Petitioner contends that the decedent owned no community property, but only a one-half interest in property owned by the decedent and his wife as tenants in common. Under the California community property system, all property acquired by either spouse during the existence of the marital union, except by gift, devise, bequest, or descent, is presumed to belong to the community, the husband and wife each owning a vested, present, existing, and equal interest, under management and ocntrol of the husband. See California Civil Code, secs. 161 (a), 162, 163, 164, and 172.

In California the husband and wife may enter into an agreement with each other altering their legal relations as to property and effecting a transmutation of community to separate property which will be recognized for Federal tax purposes. Boland v. Commissioner, 118 Fed. (2d) 622; O'Bryan v. Commissioner, 148 Fed. (2d) 456.

Under the law of California, and by reason of the presumption raised by respondent's determination, the burden of proving that the community property was transmuted into separate property is upon petitioner. Petitioner does not contend that a deliberate gift of any property, as such, was made by decedent to his wife, or that decedent and his wife entered into a specific contract deliberately intended to transmute community property into separate property.

Petitioner's argument on this point may be summarized as follows: The concept of community property "presupposes that the husband has the management and control of it as he has of his separate estate"; "the management and control of property by the wife is inconsistent with community property"; in the instant case the wife, not the husband, "had the management and control"; and therefore, "the property could not have been community property." ⁴ (Italics supplied.)

Petitioner cites no direct authority for this contention, and we are unable to find California cases squarely decisive of the question. However, we reject the contention for two reasons.

First, we are not satisfied that petitioner has established that the decedent actually did divest himself of management and control of their joint property and, particularly, of the bank account. The funds were at all times treated as a unit and were used for community expenditures such as food, shelter, travel, clothing, and medical expenses for the husband, wife, and children. The funds were also used to pay premiums on the decedent's life insurance and annuity policies, as well as to pay the purchase price for the home, owned in joint title. There is no showing as to who contracted these obligations and in reality exercised control and management incident to their payment. The funds were deposited in a joint account, then placed in the separate account of the wife, then redeposited in a joint account, and finally returned to the separate bank account of the wife when the decedent again found it impossible to refuse the loans to friends and acquaintances. It is not unlikely that the transfer of the community funds held in the joint bank account to the wife's separate account was a subterfuge to avoid requests for money and did not, and was not intended to, change as between decedent and his wife the community ownership or divest the decedent of the right or power to manage and control this property.

Second, we gather from cases such as Fennell v. Drinkhouse, 131 Cal. 447">131 Cal. 447; 63 Pac. 734; and Salveter v. Salveter, 135 Cal. App. 238">135 Cal. App. 238; 26 Pac. (2d) 836, that the exclusive and permanent control and management by the husband of community property is not a prerequisite to the existence of ownership by the community, but is a resulting incident, a characteristic rather than an element. The well established and persistent practice on the part of the husband of permitting the wife control and management over income and property may properly be considered as circumstantial evidence corroborating the existence of an agreement between them that the property or income be transmuted from community into separate property or income, but this transmutation results from the agreement and not from the shifting of management and control. See Kaltschmidt v. Weber, 145 Cal. 596">145 Cal. 596; 79 Pac. 272.

If there is no agreement between the husband and wife transmuting community property into separate property, then the exercise of management and control by the wife will be considered as exercised by her as agent or trustee for the husband. See Salveter v. Salveter, supra, where the court said "[the wife] was [the husband's] agent, and all moneys collected by her were held by her in trust, subject to his order and disposition * * *." Unless there is some agreement affecting the community ownership of property, the temporary relinquishment of management and control by the husband to the wife no more terminates the community ownership of property than the relinquishment of possession. See Fennell v. Drinkhouse, supra.The fundamental error in petitioner's syllogism is his conclusion that, because at the time of decedent's death the wife "had the management and control," the property could not have been, as a matter of law, community property.

The fact that the decedent's wife "had the management and control" may be properly considered as circumstantial evidence corroborating an agreement made by them and intended to transmute community property into separate property. We have considered the evidence as to the wife's management and control, but have rejected the conclusion urged by the petitioner for two reasons: (1) We are not persuaded that the wife, in reality, had exclusive management and control, and (2) a consideration of the facts in the record bearing upon this issue persuades us that there was no agreement on the part of decedent and his wife intended to transmute community property and income into separate property and income.

Since the petitioner, on the record before us, has not proved that respondent erred in his determination that the property here in question was owned by decedent and his wife as community property, and since we are of the opinion for reasons later made explicit that a contrary finding of the state court is not binding upon us in this proceeding, we conclude, and have so held, that respondent must prevail upon this issue.

In view of the disposition of this issue, the alternative question of estoppel becomes moot.

The second issue is whether the decedent owned some right, title, or interest in the popular songs he wrote, or some rights in connection with his membership with Ascap which are includible in the gross estate. The value of this property, assuming its existence, has been determined by respondent to be in the amount of $ 50,000, and no evidence as to value has been adduced by petitioner.

Both this issue and the community property issue were the subject of state court litigation. The first determination of these issues was made in the state inheritance tax proceedings. Subsequent orders and decrees of the state court, including the decree for partial distribution entered August 10, 1945, were secured in uncontested proceedings by reciting the decree of the inheritance tax determination.

An adjudication of property rights by a state court of competent jurisdiction entered in a bona fide adversary proceeding and after a hearing on the merits is binding upon this Court. Freuler v. Helvering, 291 U.S. 35">291 U.S. 35; Blair v. Commissioner, 300 U.S. 5">300 U.S. 5. However, "the rule applies only to a decision entered in a proceeding presenting a real controversy for determination. The decision must settle issues regularly submitted and not be, in any sense, a consent decree." Tatem Wofford, 5 T.C. 1152">5 T. C. 1152, 1162, and cases cited; Leslie H. Green, 7 T. C. 263; affd., 168 Fed. (2d) 994.

The local probate court proceedings were initiated through the inheritance tax assessment and determinations. Pursuant to California law, Act 8495, sec. 16, the California inheritance tax appraiser filed a report which is the equivalent of a complaint or petition with the probate court. The principal contest arose over including in the decedent's estate, for inheritance tax purposes, the "value of domestic and foreign copyrights owned by decedent, including renewal rights and also including performance rights, as evidenced and affected by contract with American Society of Composers, Authors and Publishers * * *." After the Federal estate tax controversy arose, involving the inclusion of all community property in the decedent's estate in accordance with the new provisions of the Internal Revenue Code, which became effective two days before the death of the decedent, the objections to the inheritance tax appraiser's report were amended to include the issue that the decedent owned no community property. The attorney for the state controller appearing in support of the appraiser's report objected to the belated amendment to the objections. He was mollified by the statement of counsel appearing for petitioner that in any event there was to be a fifty-fifty division of the property in the same manner as community property. Oral testimony of two witnesses was then given as to the common law form in which the bank accounts were held and the decedent's statements in connection therewith. No documentary matters were introduced in evidence, there was no cross-examination of the witnesses, and no opposing evidence, testimony, or arguments. Petitioner persisted in attempting to introduce arguments in support of his position. The attorney for the state controller again stated that there was no controversy as far as the State of California was concerned. He stated that the issue did not make a "nickel's worth" of difference for inheritance tax purposes. Petitioner's attorney argued that there must be a contest, since he did not want the Federal authorities to be able to claim a consent decree. The probate judge ended the discussion by expressly "passing" the argument on that issue. See the full text of these statements set out as footnote 1 in the findings of fact. The only possible conclusion is that there was no decision on the merits as to the community property issue. See First-Mechanics National Bank of Trenton v. Commissioner, 117 Fed. (2d) 127; Commissioner v. Childs' Estate, 147 Fed. (2d) 368; Leslie H. Green, supra.

In direct contrast to the separate community property issue, the so-called Ascap issue did present a real controversy and there is no hint of consent or collusion for tax purposes. There were no irregularities in the pleading. The controversy was brought before the probate court in due course. The issue was bitterly contested. Arguments, documentary evidence, and oral and transcribed testimony were introduced on both sides. Depositions from witnesses as far away as New York were introduced in evidence. The judge was required to rule in favor of or against each party as questions arose in the trial, and ultimately to decide the issue presented.

A decree of partial distribution was secured, stating the same conclusions as in the inheritance tax decree. This proceeding was wholly uncontested and the court decree was a mere copy of the petition, which, in time, recited and relied upon the inheritance tax decree. There is nothing in this order, or decree, changing the community property issue to a real controversy or converting the adjudication of the Ascap issue into a consent decree.

While the decision of the state court on the so-called Ascap issue was, in our opinion, the decision of a real controversy, it does not necessarily result that it is binding upon us in this proceeding. The questions remain whether the precise issue before us was explicitly involved in the rather loose pleadings filed in the state court litigation, or was implicitly decided, in a proceeding arising under the inheritance laws of California and thus involving an ultimate question different from that involved in Federal estate tax litigation. There is also the question raised by petitioner of whether we can accept the decree of the state court on one issue, while disregarding it on another.

These questions we need not and do not decide, since, even if we approach the question without giving effect, or, indeed, consideration to the decision of the state court, we would, and do, conclude that decedent at the time of his death possessed property rights in and to musical compositions which were properly includible in his estate. A reading of the contracts between decedent and the moving picture studios indicates that the nondramatic performing rights in and to decedent's compositions were reserved by him and were his property. These performing rights were assigned by him for limited periods to Ascap, which was in effect an organization acting as a cooperative agency for composers, authors, and publishers in obtaining for them the greatest possible remuneration and in making an equitable division thereof. These services of Ascap were valuable to decedent and added value to the performing rights to his musical compositions as to which assignments were made for limited periods to Ascap for the purpose of accomplishing the aims of the agency. Since decedent was a noted composer and his compositions were popular, Ascap was interested in obtaining and retaining the performing rights to these compositions. It was reasonably to be anticipated that Ascap, upon the death of decedent, would make similar arrangements with the person who should acquire, by will or by law, the public performance rights to these compositions upon the death of the composer. The wife acquired these rights upon the death of decedent, and she executed similar assignments to Ascap. Thereafter she received the same distributions from Ascap on account thereof as decedent had received. Only by reason of her acquisition of the public performance rights to decedent's compositions did she become entitled to such membership and distributions. Any contention of petitioner that decedent had completely parted, prior to his death, with all property rights in and to his compositions, and that the later membership of decedent's widow in Ascap was in the nature of a gratuity to her, is not supported by a realistic appraisal of the facts.

This issue is accordingly decided in favor of respondent.

The third issue is whether petitioner estate is entitled to a deduction for support of decedent's dependents in excess of $ 24,000 allowed by the Commissioner.

Section 812 (b) (5) of the Internal Revenue Code allows the estate the deduction of such amounts "reasonably required and actually expended for the support during settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered * * *."

Regulations 105, section 81.40, states:

* * * The support of dependents of the decedent during the settlement of the estate is deductible but pursuant to the following rules:

(a) In order to be deductible, the allowance must be authorized by the laws of the jurisdiction in which the estate is being administered, and not in excess of what is reasonably required.

(b) The allowance for which deduction may be made is limited to support during the settlement of the estate. Any allowance for a more extended period is not deductible.

(c) There must be an actual disbursment from the estate to the dependents, but after payment has been made the right of deduction is not affected by the fact that the dependents do not expend the entire amount for their support during the settlement of the estate.

It is apparent that the widow and children are dependents of the decedent within the meaning of Estate of Jacobs, 8 T. C. 1015. It is apparent also that California grants a family allowance of support in accordance with the prior mode of living. See Estate of Bump, 152 Cal. 274">152 Cal. 274; 92 Pac. 643; Estate of Cowell, 164 Cal. 636">164 Cal. 636; 130 Pac. 209. The amount of support is not conditioned by the fact that the dependents may have had separate income. Estate of Middlekauff, 2 T.C. 203">2 T. C. 203.

However, after applying the statute and quoted regulations to the facts as disclosed by the record, and having considered all the pertinent factors pointed out by the parties hereto, we have reached the conclusion, already appearing in our findings of fact, that the amount of $ 50,000 constitutes an allowance for the support of decedent's dependents during the settlement of the estate which was reasonably required and actually expended.

Decision will be entered under Rule 50.

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Footnotes

• 1. Mr. Miller [attorney for the estate]: * * * Then there is another matter of community property. The report shows an allowance and exemption on the basis of community property. Your Honor will find, that on the basis of community property. Your Honor will find that on the second part of the report. The appraiser took one-half of the estate interest as community property and we have filed objections to that exemption. Your Honor might say that is going to merely increase the amount of the estate tax. However, our objections go further than the mere denial that it was community property. We allege that one-half of the property was Mrs. Rainger's separate property and one-half was Mr. Rainger's separate property. It might be true that the end result is the same with respect to the tax but here is where it is important. Your Honor's determination here will seriously affect the rights of the widow with respect to the Federal Estate Tax. The determination of that tax is not before your Honor but the determination of what interest the decedent had in the property will become material. Now, the Federal people in view of Mr. Rainger's death on October 23, 1942, which was just two days after the new Internal Revenue Code went into effect, have ignored all of the community property interests of the widow and they treat everything, not as the State Inheritance Tax Department does half and half, but they treat the entire estate as the husband's and seek to tax it all and ignore the widow's rights so that it becomes important to determine actually what her interest is. That is why we intend to introduce evidence in connection with this point to show that by an agreement between them the status of the property was changed in 1938 from community property to separate property. I felt that I should make that explanation because your Honor might wonder why the evidence is going in because the end result will appear to be the same in this proceeding. Is that not correct?

  * * * *

  Mr. Barker [attorney for the State Controller]: As counsel says so far as the community property phase goes we are not particularly concerned about that. We are only taxing one-half of the property in any event so if counsel is successful in establishing that Mr. Rainger owned one-half of the property as his separate property that would still be the one-half taxed. I don't want to throw any monkey wrenches in counsel's way but until the filing of the last objections there was no contention made so far as I can recall that the estate was other than community property but as I say we are not particularly concerned. We won't argue that particular matter either way. * * *

  Mr. Miller: May I add one thing? I feel that I should explain with reference to our urging the community property question so late. It was not until I started to investigate the detailed fact that I came to the conclusion that it was separate property and I immediately proceeded to amend our objections on that. The reason I am pressing this point is that we don't want a consent judgment -- we don't want a stipulation, we want a judgment on the merits so that later on no attack can be made on it. * * *

  [Argument, Ex. X-8.]

  Mr. Miller: I want first to dispose of the problem connected with our separate property, your Honor. I must say to the Court that we have not introduced all of the evidence that we have available on that subject but I did not feel that I should consume too much of the time of Court and counsel by calling other witnesses that we have on that subject. I think we have introduced enough evidence to show that all of the assets that are listed on our amended objections were owned half and half by Mr. Rainger as his separate property and one-half by Mrs. Rainger. I want to direct the Court's attention briefly to several items. I want to remind the Court about the evidence of funds going into Mrs. Rainger's separate account. There are several theories under which we maintain that one-half of the property at least is the separate property of Mr. Rainger and one-half the separate property of Mrs. Rainger. I don't want any of the evidence in this case to be construed that we are claiming more than one-half of the separate property as Mrs. Rainger's property no matter what the contributions were. Since the matter has been of extreme importance to us I have done a lot of research and have a great many authorities on the subject and if the Court indicates whether it wants substantial authorities on that question I will so proceed. Otherwise, I will go to the next important question in the case and that is the Ascap question.

  The Court: Of course there is no controversy here as to your claim of separate property.

  Mr. Miller: Yes, there is a controversy.

  The Court: Are you --

  Mr. Barker: Well, I don't think he means so far as we are concerned.

  Mr. Miller: I think there is a controversy so far as the department is concerned and I don't want to rely upon a consent judgment. I don't want it to be said later on that we had collusion so I don't know how far to proceed in the argument with authorities. I think our record is clear and we have enough evidence to justify a finding that one-half of the property was the decedent's sole and separate property and one-half was Mrs. Rainger's.

  Mr. Barker: As I understand your position even assuming that you are entitled to establish certain amounts as separate property nevertheless for the purposes of this report so far as the division is concerned, the division is satisfactory.

  Mr. Miller: Yes. For instance on the Penn Mutual Policy we introduced more than $ 40,000.00 in checks and that is more than one-half of the Penn Mutual but we are only claiming one-half as separate property.

  The Court: Well, I think we might pass that phase of the argument then.↩

• 2. The parties stipulated that no evidence would be introduced herein to refute the determination of respondent that the value was $ 50,000.↩

• 3. SEC. 811. GROSS ESTATE.

  The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated * * *.

  (e) Joint and Community Interest. --

  * * * *

  (2) Community interests. -- To the extent of the interest therein held as community property by the decedent and surviving spouse under the law of any state, territory, or possession of the United States, or any foreign country, except such part thereof as may be shown to have been received as compensation for personal services actually rendered by the surviving spouse or derived originally from such compensation or from separate property of the surviving spouse. In no case shall such interest included in the gross estate of the decedent be less than the value of such part of the community property as was subject to the decedent's power of testamentary disposition.↩

• 4. Quotations are from petitioner's opening brief, pp. 33-34.↩