Taxation – Federal Income Tax – Purchase by Network of Corporation Producing Entertainer’s Radio Show as Compensation to Entertainer

Prior to 1947, Jack Benny produced a complete radio show for his sponsor, American Tobacco Company. In January 1947 Amusement Enterprises was incorporated with Benny taking 60 percent of the stock and the remainder going to three of his business associates. Amusement contracted with American to produce a complete radio show, exclusive of Benny’s services, to be broadcast over the NBC network on Sunday evenings. Benny signed a separate contract with American as the star of the show. Under the American-Benny contract American could make no change in the time of the broadcast or the network facilities without Benny’s approval. In November 1948 the stockholders of Amusement sold their stock to the Columbia Broadcasting System for $2,260,000, and, shortly after the sale, American and Benny agreed to transfer the show from NBC to CBS beginning January 2, 1949. On his return for 1948 Benny reported the gain derived from the sale as long-term capital gain. The Commissioner determined that $2,054,000 of the purchase price was taxable to him as ordinary income as compensation for his services. Held, three judges dissenting, the entire amount paid by CBS to Amusement’s stockholders was solely in payment for stock. Jack Benny, 25 T.C. 197 (1955).