dissenting in part: I have no quarrel with my colleagues in the majority insofar as their conclusion that petitioners’ receipts from the sale of the motion-picture rights to “The Idyll of Miss Sarah Brown” is concerned. Such receipts in my opinion clearly constituted ordinary income. My difficulties relate to the long-term capital gains treatment accorded petitioners’ receipts from the sale of the movie rights to “The Boy Friend” and “Stay Away Joe.” I think these receipts should also be held to constitute ordinary income to petitioners.
Fortunately, there is no disagreement between the parties that the motion-picture rights to “The Boy Friend” and “Stay Away Joe” constituted property in petitioners’ hands capable of being the subject matter of a sale. We are thus not confronted with some of the elusive and frustrating questions which were so carefully and lucidly analyzed by Judge Friendly in Commissioner v. Ferrer, 304 F.2d 125 (C. A. 2, 1962). See also Eustice, “Contract Bights, Capital Gain, and Assignment of Income—the Ferrer Case,” 20 Tax L. Rev. 1 (1964). Bather, the issue before us is whether petitioners’ sales of these conceded property rights gave rise to capital gain or ordinary income. In this context, our focus is directed to the question of whether such rights constituted “property held by the taxpayer [petitioners] primarily for sale to customers in the ordinary course of [their] trade or business,” in which event the receipts would be expressly excluded from the preferential treatment embodied in sections 1221 and 1231.1 See sec. 1221(1) and sec. 1231(b) (1) (B).
With the question before us thus narrowly focused, we need not go so far as to accept respondent’s contention that petitioners should be denied capital gains benefits simply on tbe ground that petitioners held the motion-picture rights for sale “in connection with” their trade or business as theatrical producers. While this sweeping construction of section 117 (a) (1) of the Internal Kevenue Code of 1939 (the predecessor of section 1221) seems to have been rejected by this Court in Fred MacMurray, 21 T.C. 15 (1953), and Anatole Litvak, 23 T.C. 441 (1954), it should be noted that both these cases were decided prior to the enunciation by the Supreme Court of its pervasive warning that the capital gains provision of the Code is to “be narrowly applied and its exclusions interpreted broadly” (see Corn Products Co. v. Commissioner, 350 U.S. 46, 52 (1955), and Commissioner v. Gillette Motor Co., 364 U.S. 130, 134 (1960)) — a warning which, while not without its limitations (cf. Commissioner v. Brown, 380 U.S. 563 (1965)), still flourishes with considerable vitality (cf. United States v. Midland-Ross Corp., 381 U.S. 54, 56-57 (1965); compare Z. Wayne Griffin, 33 T.C. 616 (1959)).
It is against this background of narrow legislative interpretation that the petitioners must satisfy their burden of proof that they did not hold the rights in question “primarily for sale to customers in the ordinary course of [their] trade or business.” This, in my opinion, they have failed to do. Petitioners historically and consistently looked to the sale of the motion-picture rights to the plays they produced as a major source of income. Admittedly, in ithe normal case, they did not acquire the rights themselves but rather participated with the author in such exploitation by sale. Nevertheless, under the standard dramatic-musical production contracts, the producer’s (or manager’s) participation envisaged active involvement in the sale of the movie rights by the author. Cf. Commissioner v. Ferrer, supra. To me, it would be most unrealistic to say that because the petitioners’ moition-picture rights in “The Boy Friend” and “Stay Away Joe” took a different form, the receipts therefrom should necessarily be accorded a different treatment than that accorded to their participation in the sale of motion-picture rights under normal circumstances. Indeed, petitioners, themselves, do not seriously so contend.
The nub of petitioners’ argument is that, with respect to “The Boy Friend” and “Stay Away Joe,” they acquired the motion-picture rights to these works with the intention of becoming independent moition-picture producers and that only after they determined that this course of action could not be implemented did they sell the rights. Therefore, they argue that the motion-picture rights were not held for sale to customers primarily in the course of their claimed business as motion-picture producers.
In my opinion, ithe record simply does not sustain this assertion. Certainly, as to “Stay Away Joe,” petitioners abandoned their intern-lion to produce a motion picture, if not before, tiren immediately after, tire intention was formed. And, even in the case of “The Boy Friend,” the evidence is far from clear that petitioners did any more than carry on discussions of sorts about the possibility of independently producing a motion picture. The cardinal fact, from which petitioners cannot escape, is that they never embarked upon a meaningful course of action involving independent motion-picture production. Thus, even if we assume that Fred MacMurray, supra, and Anatole Litvak, supra, retain their undiluted vitality despite the subsequent warning by the Supreme Court (see p. 367, supra), they are clearly distinguishable. In MacMurray, the taxpayer was in fact a prominent actor who acquired the rights involved therein in furtherance of his acting business. In Litvale, the taxpayer was in fact a noted motion-picture producer who acquired the rights involved therein in furtherance of his motion-picture producing business.
In my opinion, the most that can be said, on the basis of the record herein, is that petitioners’ plans with respect to the motion-picture rights to “The Boy Friend” and “Stay Away Joe” were uncertain at the time they acquired the rights. After their exploration of the possibility of independent motion-picture production proved fruitless, they crystallized their intention to sell the rights. This is a far cry from the situation which obtained in Malat v. Riddell, 383 U.S. 569 (1966), where the taxpayer’s purposes both to rent and to sell were crystallized from the very beginning and the question was which of these two substantial purposes was “primary.”
Admittedly, on the record before us, the question involved herein is not entirely free from doubt. But it seems to me that, in order to be entitled to the benefits of capital gains, petitioners ought to have furnished proof of “sanitization” of their claimed investment activities comparable to that required of a taxpayer who is a dealer in securities but also makes investments for his own account. Compare section 1236 and the regulations thereunder; George R. Kemon, 16 T.C. 1026 (1951). This, in my opinion, they have not done.
I would hold that petitioners held the motion-picture rights in “The Boy Friend” and “Stay Away Joe” primarily for sale to customers in the ordinary course of their business as theatrical producers or, alternatively, in the ordinary course of a business of selling motion-picture rights.2
DkbNNEN, TietjeNS, Baum:, and SimpsoN, J.J., agree with this dissenting opinion.An affirmative resolution of this question obviates the necessity of considering the further question whether such rights constitute “property used in [a] trade or business, of a character which is subject to the allowance for depreciation.” Secs. 1221(2) and 1231(a).
While the Court stated in Fred MacMurray, 21 T.C. at 31 (1953), that “An actor or a producer-director does not in the ordinary course of his trade or business hold property primarily for sale to customers,” it went on to point out that ‘‘He may, however, engage in another business involving the purchase and sale for profit of property, such as stories for motion pictures." (Emphasis added.)