Commissioner v. Wodehouse

Author P.G. Wodehouse (defendant) was a British resident who resided in France. At all times relevant to this case, Wodehouse was a nonresident alien of the United States, was not engaged in trade or business within the United States, and did not have an office or place of business in the United States. Wodehouse, an author of short stories, plays, and novels, sold serial rights to a short story and a novel in 1938 and 1941. Wodehouse’s literary agent withheld part of each payment for United States income-tax purposes. Nevertheless, the Commissioner of Internal Revenue (the commissioner) (plaintiff) filed tax deficiencies for those years. Wodehouse contested the deficiencies and sought a refund of the withheld amounts in question. The commissioner argued that the monies were rentals or royalties paid for the use of United States copyrights and thus taxable. Wodehouse argued that the monies were payments for the sale of an interest in property and thus not taxable. Either source of income would have been taxable under prior law, but the Revenue Act of 1936 had narrowed the definition of taxable income for nonresident aliens not doing business in the United States. The justification was that the government had difficulty ascertaining capital gains income from the sale of property by nonresident aliens, but under the royalty procedure, the government could easily figure income taxes from sources already withheld, like serial payments for the use of copyrights. Wodehouse argued that the payments were single and not serial payments, but the government argued that the nature of the payments as one-time payments did not change the nature of the payments.