Boulez v. Commissioner
1984 U.S. Tax Ct. LEXIS 23, 83 T.C. 584, 83 T.C. No. 31 (1984)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the 'work for hire' doctrine, payments made to an independent contractor for the creation of a copyrightable work constitute compensation for personal services, not royalties, unless the contract expressly reserves a property interest in the work for the creator.
Facts:
- Pierre Boulez, a world-renowned orchestra conductor and a resident of the Federal Republic of Germany (FRG), was a nonresident alien of the U.S. for tax purposes.
- On February 19, 1969, Boulez entered into an exclusive contract with CBS Records to provide his services as a conductor for the purpose of making phonograph records.
- The contract stipulated that all master recordings and records manufactured from them would be the sole property of CBS Records, 'free from any claims whatsoever' by Boulez.
- While the contract referred to Boulez's compensation as 'royalties' and calculated payments as a percentage of future record sales, it also characterized his role as rendering 'services' that were 'unique and extraordinary'.
- The contract contained no language conveying or licensing any property right from Boulez to CBS, nor did it mention the word 'copyright'.
- Boulez conducted performances in private sessions solely for the purpose of being recorded.
- CBS, Inc. controlled the recording sessions, employed the orchestra musicians, and registered all copyrights for the resulting sound recordings in its own name.
Procedural Posture:
- Pierre Boulez filed a 1975 U.S. nonresident alien income tax return, excluding income from CBS, Inc. as non-taxable royalties under the U.S.-FRG tax treaty.
- The Internal Revenue Service (respondent) audited the return, determined a tax deficiency of $20,685.61, and asserted the income was taxable compensation for personal services performed in the U.S.
- At Boulez's request, competent authority proceedings were initiated between the U.S. and the FRG to resolve the tax dispute, but the authorities failed to reach an agreement.
- Boulez (petitioner) filed a petition in the United States Tax Court to challenge the respondent's determination of deficiency.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Do payments received by a nonresident alien orchestra conductor from a U.S. record company, under a contract for his services in making recordings, constitute 'royalties' exempt from U.S. tax under the U.S.-FRG tax treaty, or are they taxable as 'compensation for personal services'?
Opinions:
Majority - Judge Korner
No, the payments do not constitute royalties; they are compensation for personal services and are therefore taxable by the United States. The court employed a two-part analysis to reach this conclusion. First, examining the contract's intent, the court found that despite the use of the word 'royalties,' the agreement's substance pointed to a personal services contract. The emphasis on Boulez's exclusive services, the unique and extraordinary nature of his talent, and the fact that CBS retained all property rights indicated an employment relationship. Second, as a matter of law, the court determined that Boulez never possessed a property interest in the recordings that he could sell or license. Under the 'work for hire' doctrine of U.S. copyright law, when an individual is commissioned to create a work, the employer or commissioning party is considered the 'author' and owner of the copyright from the moment of creation, unless there is an express contractual provision to the contrary. This doctrine applies to independent contractors as well as employees. Since Boulez was hired by CBS to create the recordings and the contract did not reserve any rights for him, he had no ownership interest to transfer, making the payments compensation for his labor, not royalties for the use of property.
Analysis:
This decision clarifies the intersection of the 'work for hire' doctrine and international tax law, establishing that the substance of a transaction, not the labels used in a contract, determines the tax character of payments. It solidifies the principle that, absent an express reservation of rights, an independent contractor hired to create a copyrightable work does not own the copyright. This precedent is significant for artists, writers, and other creators, as it confirms that their income will likely be treated as compensation for services rather than royalty income, impacting how they are taxed, particularly in cross-border situations.
Unlock the full brief for Boulez v. Commissioner