(C), under which the deduction in issue is claimed, expressly refers to contributions to a profit-sharing trust which may be deducted in the taxable year when paid "if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under section 165 (a)." Thus, approval of an employees' trust as tax exempt under section 165 (a) is a prerequisite to allowance as a deduction under section 23 (p) (1) (C) of an employer's contributions to such a trust. To qualify as tax exempt under section 165 (a), the employees' trust must be part of a plan designed and applied to enable the employees or their beneficiaries to share in the profits of their employer's trade or business according to a predetermined formula. Regulations 111, sec. 29.165–1; Lincoln Electric Co. Employees' ProfitSharing Trust, 14 T. C. 598. If the provisions of the plan are approved, the trust set up under it is exempt from tax, and under section 165 (b) the contributions made to the trust are taxable to the employees benefited only when distributed or made available to them. The profit-sharing plan to which petitioner made payments was exempt under section 165 (a), but we have held that only part of the payments made by petitioner were to or under a plan as envisaged by sections 165 (a) and 23 (p) (1) (C) and approved by the Commissioner. Only such payments as were actually called for by the predetermined formula contained in the agreement and declaration of trust are deductible under section 23 (p) (1) (C). As is said in Mertens, Law of Federal Income Taxation (Supp. 1949), sec. 25.71, pp. 251-2:

[The employer] is not entitled to a deduction under amended I. R. C., Sec. 23 (p), however, unless the plan is either one qualifying under amended Section 165 (a) or the employees' rights in the plan are nonforfeitable. This is brought out by a converse provision [section 23 (p) (1) (D)] making the employer's contribution deductible in the taxable year in which paid if the employees' rights

are nonforfeitable.

Respondent does not question the deductibility of such contributions as were called for by the plan. But he correctly disallows the excess payments made, which can not be said to be a part of the plan as it was approved, with its accompanying tax benefits, by the Commissioner. (Compare the interrelated effect of sections 165, 23 (p) (1), and 22 (b) (2) (B), all added to the Internal Revenue Code by section 162 of the Revenue Act of 1942.)

Petitioner makes no argument that the excess contributions were deductible under subparagraph (D) of section 23 (p) (1), since it is clear that the employees' rights were forfeitable to varying extents if their employment was terminated otherwise than by reason of death or retirement. See H. S. D. Co. v. Kavanagh, 88 Fed. Supp. 64 (Dist. Mich. 1949).

It is held, therefore, that respondent was correct in his determination that only the amounts of $17,717.95 and $17,718.53 were deductible by petitioner as contributions under section 23 (p) (1) for the taxable years 1944 and 1945, respectively.

Reviewed by the Court.

Decision will be entered for the respondent.

JOSEPH A. FIELDS, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 9974, 13469. Promulgated June 20, 1950.

1. The petitioner, a playwright, is the coauthor of the plays "My Sister Eileen" and "The Doughgirls," which were copyrighted in his name. With his coauthors, he transferred the exclusive worldwide motion picture rights to these plays to Columbia Pictures Corporation and Warner Brothers Pictures, Inc., respectively. Held, the proceeds from the sale of the movie rights to the plays are taxable to the petitioner as ordinary income in the years in which received under section 22 (a), rather than as capital gains under section 117 (j), because the movie rights were not property used in the trade or business of the petitioner, but were property held primarily for sale to customers in the ordinary course of trade or business.

2. Petitioner's wife commenced an action in May, 1943, in the Supreme Court of the State of New York, asking that a decree of separation be granted to her. The court ordered the petitioner to make payments to her as alimony pendente lite. A decree of separation was not entered until December 21, 1943. Held, the payments of alimony pendente lite in 1943 are not taxable to his former wife under section 22 (k) and, therefore, are not deductible in 1943 by the petitioner under section 23 (u).

1. Herman Sher, Esq., for the petitioner.

Walt Mandry, Esq., for the respondent.

The Commissioner has determined deficiencies in the petitioner's income tax for the years 1941 and 1943 in the respective amounts of $8,801.76 and $27,475.36. The year 1942 is involved only because of the Current Tax Payment Act.

The respondent has made claim for an increase in the deficiency, in his pleadings which were filed before the trial of these proceedings. in the amount of $8,356.67. Therefore, the total amount of the deficiency for the year 1943 is $35,832.03.

The respondent has conceded that he improperly included the sum of $15,679.41 in the petitioner's income for the year 1941. The parties have entered into a stipulation under which it is agreed that other adjustments shall be made with respect to the amounts of petitioner's income for 1941 and for 1942. Also, the petitioner does not contest

certain other adjustments which the respondent has made. Effect will be given to these agreements and concessions of the parties under Rule 50.

The chief issue to be decided in this proceeding is whether the proceeds from the transfer of the exclusive world motion picture rights to the play "My Sister Eileen" to Columbia Pictures and the transfer of the exclusive world motion picture rights of the play "The Doughgirls" to Warner Brothers Pictures, are taxable as capital gains or ordinary income. Petitioner, as a coauthor, had the copyright to both plays. The second issue is whether the petitioner can deduct, under section 23 (u), payments which he made to his wife as alimony pendente lite during 1943.

The petitioner filed his income tax return for 1941 with the collector for the sixth district of California. He filed his returns for the years 1942 and 1943 with the collector for the third district of New York. The record in this proceeding consists of an agreed statement of facts and exhibits, from which we make the following findings of fact.

FINDINGS OF FACT.

The facts which have been stipulated are adopted as part of the findings of fact. The stipulation is incorporated herein by this reference. The parties are now agreed upon certain facts which are material to certain items of income in either 1941, 1942, or 1943, which are to be disposed of by the parties under a Rule 50 recomputation. It is unnecessary to restate these facts in the findings of fact, and we do not do so. The facts which are necessary to an understanding of the issues to be decided are as follows:

Issue 1.-The petitioner has followed the occupation of playwright since before the year 1941, and he is the coauthor of the plays "My Sister Eileen" and "The Doughgirls." During the year 1941 the petitioner and his wife were residents of California. During 1942 and 1943 they were residents of New York.

(a) Facts relating to the transfer of the world motion picture rights to a play entitled "My Sister Eileen." At some time prior to September 19, 1940, the petitioner and Jerome Chodorov (hereinafter Chodorov) collaborated in the writing of the play "My Sister Eileen," founded on the novel of the same name. This play was copyrighted in their names on or before January 21, 1941. Prior to the writing of the play, the petitioner and Chodorov entered into an agreement with Ruth McKenney, the author of the novel "My Sister Eileen," whereby she granted to them "the sole and exclusive right and license to all dramatic rights" including stage and motion picture dramatization of her novel and authorized them to have presented and produced the play which they were to write based on her book. The royalties

and proceeds accruing from the dramatization of the book were to be divided 50 per cent to the author of the novel and 50 per cent to the dramatists, the petitioner and Chodorov.

On October 7, 1940, Max Gordon entered into a dramatic production contract with the petitioner and Chodorov, as the "Author" of the play. Under this contract the "Author" leased "the sole and exclusive right to produce and present the said play or other literary property on the speaking stage in the United States of America and the Dominion of Canada" in exchange for royalties from the production of the play based on gross weekly box office receipts. The dramatists expressly retained, among other stated rights, the motion picture rights to their dramatization. On November 14, 1940, the petitioner and Chodorov entered into an agreement with Max Gordon, the producer of the play, whereby, in exchange for a contribution of 25 per cent of the capital required for the production of the play, they received a 25 per cent interest in the sole and exclusive license which had been granted to the producer to produce or cause to be produced the play "My Sister Eileen." On December 26, 1940, "My Sister Eileen" opened in New York as a stage production of Max Gordon. This stage production ran continuously on Broadway for over two years. Pursuant to the agreement of October 7, 1940, with Max Gordon, the petitioner received author's royalties from this production in the amounts of $25,633.98 in 1941, $22,494.56 in 1942, and $462.19 in 1943.

On August 12, 1941, the petitioner and Chodorov, as the "Owners" of the play, entered into an agreement with Columbia Pictures Corporation as the "Purchaser" for the disposition of the motion picture rights to the play, "My Sister Eileen," which included the following:

(1) "The Owners hereby grant, sell, assign, and set over to the Purchaser, forever," the world motion picture rights to the dramatic work, "My Sister Eileen," "together with all the benefits of the copyrights in such work with respect to such motion picture rights and of all remedies for enforcing such copyrights."

(2) "The Owners hereby grant to the Purchaser the exclusive right to make motion picture versions" of the play, "My Sister Eileen," and "the exclusive, unlimited, and unrestricted right to produce, reproduce, distribute, exhibit and otherwise exploit and dispose of such motion picture versions, and to secure copyright and copyright registration therein in all countries of the world in the Purchaser's name or otherwise."

(3) "The Owners hereby appoint the Purchaser their true and lawful attorney irrevocable, in the Owner's name or otherwise, but for the Purchaser's sole benefit and at the Purchaser's expense, to enforce and protect such motion picture rights under any and all copyrights and renewals of copyrights and to prevent the infringement thereof and to litigate, collect and receipt for all damages arising from any infringement of such rights and to join the Owners in the Purchaser's sole judgment, as a party plaintiff or defendant in any such suit for infringement, on condition that the Purchaser indemnify the Owners and

hold them harmless from any and all costs and expenses by reason thereof. At the Owners' option they may become parties to any such suits and proceedings and shall have the further right to litigate, collect and receive all damages for infringement of all rights except those herein specifically granted to Purchaser.” (4) Article 9 of the agreement provided that in the event of any renewals or extensions of the United States copyright in the play, the Purchaser shall have under all the renewed and extended copyrights all of the rights in the play which in the agreement had been "granted, sold, assigned, and set over to the Purchaser."

(5) Article 13 provided that the term "Owners" used in the agreement included their "heirs, executors, administrators, next of kin, successors and assigns"; that the term "Purchaser" used in the agreement included "its successors and assigns"; and that the Purchaser shall have the unlimited right “to sell, assign, transfer or otherwise dispose of this agreement, and/or any or all of its right, title and interest thereunder, in whole or in part."

(6) Article 17 provided that the agreement "shall inure to the benefit of and be binding upon the respective heirs, executors, administrators, next of kin, successors and assigns of the parties hereto."

Under this agreement the petitioner and Chodorov also granted to the corporation a one-half interest in the radio broadcast rights to the motion picture version of "My Sister Eileen" and the exclusive right to enter into agreements with third parties for the exploitation of these radio rights. They expressly reserved all rights not specifically granted, including the publication, television and radio, and production rights on the spoken stage to their play. It was agreed that the purchaser would not have the right to produce any sequels, but that the authors would "not produce or license or otherwise grant or convey the right to produce or permit voluntarily the production of any motion picture or televised motion picture sequel" prior to certain specified dates. This agreement was consented to and approved by Ruth McKenney.

In consideration for the rights which it acquired, Columbia Pictures Corporation agreed to pay $225,000, of which the petitioner's share was to be $40,500. He received payments under this agreement disposing of his motion picture rights in the play, as follows:

The petitioner included the above net amount of $11,416.81 in ordinary income in his income tax return for the year 1941 and the above net amount of $11,688.41 in ordinary income in his income tax return for the year 1942. In 1943 the petitioner reported 50 per cent