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Tax Court Divides Endorsement Income into Personal Service Or Royalty Earnings

By Stan Soocher
July 28, 2011

The U.S. Tax Court decided that fees received by international pro-golfer Retief Goosen for so-called “on-course” endorsement deals constituted both personal service and royalty income. Goosen v. Commissioner of Internal Revenue, 136 T.C. No. 27. Goosen, a UK resident whose golf engagements have included some in the United States, entered into employment agreements with two companies controlled by his career and financial manager, IMG World Inc. Under this arrangement, Goosen's non-UK income was directed to European Tournament Organizers Ltd. (ETO), and his UK income to European Sports Promotions Ltd. (ESP). The U.S. Tax Court assessed tax underpayments against Goosen covering several years.

The court noted of Goosen's endorsement deals: “The TaylorMade, Izod and Acushnet endorsement agreements (collectively, the on-course endorsement agreements) required petitioner to wear or use [the companes'] products during golf tournaments. In contrast, the Rolex, Upper Deck [for trading cards] and Electronic Arts [for a video game] endorsement agreements (collectively, the off-course endorsement agreements) did not have this requirement.” Petitioner Goosen and the respondent tax commissioner agreed that the off-course endorsement income was royalty income. The on-course endorsement agreements didn't allocate the amount the companies would pay Goosen for personal services apart from the right to use the golfer's name and likeness. The tax court found: “Petitioner's endorsement income depended, however, on his playing in tournaments. The record shows that the performance of services and the use of name and likeness were equally important. We find that 50[%] of the endorsement fees petitioner received represented royalty income and 50[%] represented personal services income.”

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