Foreign Golfer’s Endorsement Income Was Part Personal Services Income, Part Royalties; U.S. Source Income Percent Determined (Goosen, TC)

The allocation of a professional golfer’s endorsement income, both between U.S.-source and non-U.S.-source income and between personal service income and royalty income, was addressed by the Tax Court. The taxpayer, an internationally famous golfer who was a South African citizen and resided in London, United Kingdom of Great Britain (U.K.), received income for his commercial endorsements from a number of sources. The endorsement income was divided into on-course and off-course income, depending on the nature of the actions constituting the endorsements. As a nonresident alien, the taxpayer was taxable on income from any activity that constituted engaging in a U.S. trade or business, as well as U.S.-source fixed and determinable annual or periodic income, under Code Sec. 864(b).

First, the on-course endorsement income (off-course endorsement income was agreed to be royalty income) was characterized as 50-percent personal service income and 50-percent royalty income. Second, the sourcing for the royalty income (both on-course and off-course) was determined with respect to the terms of the endorsement agreements the taxpayer entered into with his sponsors. Payments for the use of the taxpayer’s image on playing cards were 92-percent U.S.-source income, while payments for the use of his image on an electronic game were 72-percent U.S.-source income. Royalties for on-course actions, including wearing a luxury wristwatch, were determined to be 50-percent U.S.-source income. The on-course endorsement income was found to be “effectively connected” to the taxpayer’s U.S. trade or business under Code Sec. 882(a)(1), so the taxpayer was taxable on that income at the same graduated rates as U.S. residents. However, the off-course endorsement income was not so connected, and so that income was subject to a flat 30-percent tax under Code Secs. 871(a)(1) and 881(a).

Finally, the taxpayer failed to demonstrate that any endorsement income was received in the U.K., so he was not eligible for benefits under two U.S.-U.K. tax treaties under Code Sec. 894(a)(1).

R. Goosen, 136 TC –, No. 27, Dec. 58,655

Other References:

Code Sec. 864

CCH Reference – 2011FED ¶27,189.40

Code Sec. 871

CCH Reference – 2011FED ¶27,343.049

Code Sec. 881

CCH Reference – 2011FED ¶27,484.022

Code Sec. 882

CCH Reference – 2011FED ¶27,503.87

Code Sec. 894

CCH Reference – 2011FED ¶27,642.01

Tax Research Consultant

CCH Reference – TRC INTL: 3,200

CCH Reference –

TRC INTL: 3,350

CCH Reference –

TRC INTL: 3,556

CCH Reference –

TRC INTL: 3,650


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