2011-08-23
In a recent Tax Court case, 136 T.C. No. 27 (2011), the court was asked to determine the U.S. taxation of certain endorsement fees and bonuses received by a professional golfer --- Retief Goosen (a.k.a. the “Iceman”).
Goosen received golf tournament prize winnings as well as on-course and off-course endorsement fees. For U.K. tax purposes, Goosen’s income was paid to two corporations in which he entered into employment agreements. A portion of this income was then paid to him as a salary.
The Tax Court had to first determine whether the endorsement fees would fall within the category of royalty income or personal services income. After deciding the type of income, the court had to determine the source of the royalties and services income. Next, the court had to determine whether the different streams of income were effectively connected to a U.S. trade or business. Lastly, for the U.S. source royalties that were not effectively connected income, the court had to determine whether the U.K.-U.S. Income Tax Treaty would apply to reduce the 30% U.S. tax on the royalties.
Below is a chart which shows the types of income earned by the Iceman and how the court held each type of income should be treated. A PDF version of the chart can be found at Goosen.
