Sergio Garcia v. Commissioner
United States Tax Court
140 T.C. 141 (2013)
- Written by David Bloom, JD
Facts
Sergio Garcia (plaintiff), a resident of Switzerland, was a world-famous professional golfer. Garcia had an endorsement agreement with a golf-products-marketing company called TaylorMade. Under the contract, TaylorMade paid Garcia a royalty in exchange for the right to use Garcia’s name, image, and likeness to sell products. TaylorMade also paid Garcia for attending events and performing certain personal services. The endorsement agreement was amended to reflect that 85 percent of Garcia’s income came from TaylorMade’s use of Garcia’s name, image, and likeness and 15 percent from Garcia’s personal services within the United States and other countries. Garcia wanted a higher allocation toward royalty income to pay taxes in Switzerland rather than in the United States. The allocation was not important to TaylorMade, but TaylorMade valued the use of Garcia’s name, image, and likeness more than personal services. The Internal Revenue Service (IRS) (defendant) issued a deficiency notice stating that Garcia owed more taxes. Garcia filed a petition for judicial review. Relying on a prior tax case involving another golfer, who had a similar endorsement deal but required that golfer to perform more personal services than Garcia was required to perform for TaylorMade, the IRS argued that Garcia’s income allocation was 50 percent royalty income and 50 percent personal-service income. The IRS also asserted that the royalty income that Garcia earned through TaylorMade’s use of Garcia’s image was taxable in the United States.
Rule of Law
Issue
Holding and Reasoning (Goeke, J.)
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