Stern v. United States
United States District Court for the Eastern District of Louisiana
164 F. Supp. 847 (1958)
- Written by Jenny Perry, JD
Facts
During his Army service in World War II, David Stern III (plaintiff) created a character called Francis, a talking mule, and sold several stories to Esquire magazine consisting of dialogues between a lonely second lieutenant and Francis, an old Army mule. After the war, Stern compiled his material about Francis in a novel and wrote a sequel, both of which were published. In 1950, Stern sold to Universal Pictures Company, Inc. (Universal) all his rights, title, and interest in the character known as Francis, together with his rights to the two novels. Stern received a lump-sum payment and various royalties from films based on Francis. Stern reported the amounts he received from Universal as capital gains accrued during the years received. The Internal Revenue Service (IRS) (defendant) ruled that Stern’s contract with Universal was not a sale of the Francis character and was, therefore, not subject to capital-gains treatment. The IRS also argued that due to an amendment to the Internal Revenue Code that took effect in 1950, the Francis character constituted a copyright or a literary or artistic composition and was not a capital asset. Stern paid the alleged deficiencies resulting from the IRS’s refusal to recognize the disputed amounts as long-term capital gains and sued for a refund.
Rule of Law
Issue
Holding and Reasoning (Wright, J.)
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