Unpublished Disposition, 843 F.2d 501 (9th Cir. 1988)

Nos. 87-7232, 87-7227.

United States Court of Appeals, Ninth Circuit.

Before TANG and CANBY, Circuit Judges, and JESSE W. CURTIS,^**  District Judge.

MEMORANDUM^* 

The Kovacevichs appeal pro se a Tax Court decision disallowing their income tax depreciation deduction on a record master recording (Master Recording). They contend that the Tax Court erred by determining that they had failed to show a depreciable ownership interest in the Master Recording. They also challenge several of the Tax Court's evidentiary rulings. We affirm.

We review Tax Court decisions on the same basis as decisions in civil bench trials in United States District Court. Mayors v. C.I.R., 785 F.2d 757, 759 (9th Cir. 1986). The question whether the benefits and burdens of ownership of the Master Recording have passed to the Kovacevichs so as to allow them a depreciation deduction is one of fact. The Tax Court's findings of fact, whether based on oral or documentary evidence, will not be set aside unless clearly erroneous, and due regard will be given to the trial judge's opportunity to judge the credibility of the witnesses. Fed. R. Civ. P. 52(a); see also Cooling Systems and Flexibles, Inc. v. Stuart Radiator, Inc., 777 F.2d 485, 487 (9th Cir. 1985).

Evidentiary rulings are reviewed for an abuse of discretion and will not be reversed absent some prejudice. Kisor v. Johns-Manville Corp., 783 F.2d 1337, 1340 (9th Cir. 1986). See Taylor v. Burlington Northern Railroad Co., 787 F.2d 1309, 1315 (9th Cir. 1986) (a trial court has broad discretion in admitting and excluding expert testimony and its decision will be sustained unless it is "manifestly erroneous").

The Kovacevichs argue that their interest in the Master Recording entitled them to a depreciation deduction. Once the Commissioner ruled on the claimed deduction, the burden is on the Kovacevichs to establish that the ruling is in error. Welch v. Helvering, 290 U.S. 111 (1933).

The Kovacevichs correctly observe that a taxpayer need not have actual legal title to property before he can claim a depreciation deduction in it. See Wagner v. C.I.R., 518 F.2d 655, 657 (10th Cir. 1975). However, a taxpayer is entitled to deduct a reasonable depreciation allowance only where he is in a position to suffer economic loss from the decreased value or usefulness of an asset. Weiss v. Wiener, 279 U.S. 333 (1929). The Tax Court ruled that the Kovacevichs had totally failed to put forth evidence of a sufficient interest in the Master Recording to entitle them to a depreciation allowance. We agree.

No evidence shows "when and how [the Kovacevichs] acquired what from whom." Kovacevich v. Commissioner, T.C.Memo. 86-513. As proof that they purchased the Master Recording in 1977, the Kovacevichs offered a "sales agreement" containing illegibly completed blanks and signed by a purchaser other than the Kovacevichs. The purported seller did not sign the document. Petitioner's Exh. 7-G. Two other exhibits offered as proof of purchase are similarly incomplete and unexecuted. Exhibits 37-AK and 47. Nowhere in any of the documents is there an express reference to the Master Recording.

The Kovacevichs contend that they financed the purchase by executing a non-recourse promissory note for $80,000 and by paying $10,000 by letter of credit. However, the promissory note is signed "Subject to Completion of Formal Closing;" there is no evidence in the record that any formal closing ever occurred. Petitioners' Exhibit 46. The letter of credit is executed in favor of Sound of Nashville Music, Inc. for Robert Kovacevich's account. Petitioner's Exhibit 9-I. No evidence connects Sound of Nashville Music, Inc. to the Master Recording's singer, Jones, or its producer, Bowen. In fact, Jones asserted at trial that she had paid to produce the Master Recording and that she had owned it ever since.

The Kovacevichs produced little evidence connecting them to the Master Recording. Robert Kovacevich's name appears on the record album in conjunction with the copyright notice. Joint Exhibit 4-D. The Commissioner, however, introduced uncontroverted evidence that no assignment of the copyright had been registered with the Library of Congress. Respondent's Exhibit AP. The Kovacevichs argue that they had a depreciable royalty interest. The Tax Court found that as late as September 1981, the Kovacevichs had entered no binding royalty agreements. Kovacevich v. Commissioner, T.C. Memo 86-513 at 13.

The Tax Court's findings are not clearly erroneous; they are, in fact, substantially supported by the record.

The Kovacevichs argue that the Tax Court abused its discretion by refusing to admit as an admission against interest an expert witness report prepared for the I.R.S. stating that the record would sell 50,000 copies. The Tax Court did not abuse its discretion. Reid Brothers Logging Co. v. Ketchikan Pulp Co., 699 F.2d 1292 (9th Cir.), cert. denied, 464 U.S. 916 (1983), is not dispositive, since the expert in this case was not authorized to make any declarations on the Commissioner's behalf. Moreover, because the Kovacevichs failed to establish a depreciable interest in the Master Recording, any error was not prejudicial. The report would only have been probative on the issue of fair market value.

The transmittal letter from Robert Kovacevich to the seller's attorney, stating that original documents were attached, was also properly excluded. No documents were attached to the letter. Kovacevich testified that he did not recall what documents were transmitted. The letter alone is not relevant.

The Kovacevichs fail to point to any other evidentiary ruling that was either an abuse of discretion or prejudicial.

The judgment of the Tax Court is

AFFIRMED.