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In Goosen, 136 TC No. 27 (June 9, 2011), the Tax Court held that endorsement fees and bonuses received by a professional golfer, resident in the U.K., should be allocated equally between royalty income and personal services income. The court also found that a percentage of his royalty income was U.S. -source income not effectively connected with a U.S. trade or business and that he did not benefit from any provisions under the 1975 or 2001U.K.US. income tax treaties.
Athlete/sourcing rules. Foreign athletes are taxed in the U.S. only if they engage in a U.S. trade or business or receive U.S. -source fixed or determinable annual or periodical (FDAP) income (Section 864(b)). This includes compensation for performances, endorsements, sale of merchandise, and royalty or other income closely related to the event. They are also generally subject to special withholding rules.
With respect to royalty income, income paid for the right to use intangible property is sourced where the property is used (Sections 861 1 (a)(4) and862(a)(4)).Taxpayers are required to make appropriate sourcing allocation if income relates to the right to use property within and outside the U.S.
In December 2010, the IRS launched an Issue Management Team that focused on improving U.S. income reporting and tax payment compliance by foreign athletes and entertainers engaged in U.S. activities.6 The initial focus was to be on persons engaged in tennis, golf, and music.
Facts. Retief Goosen, a South African-born professional golfer and non-domiciliary U.K. resident, entered into endorsement agreements with Acushnet, TaylorMade, Izod, Upper Deck, Electronic Arts, and Rolex. All of the agreements paid him a base fee but those with Izod, TaylorMade, and Acushnet prorated his income if he did not participate in a minimum number of golf tournaments and attain a specified rank within the competition.
International sports media entertainment group IMG World, Inc., which Goosen hired to manage his finances, characterized the endorsement fees and bonuses from Izod, TaylorMade, and Acushnet as 50% personal services income and 50% royalty income on...