Monday, April 1, 2013

Sergio Garcia Wins Partial Victory in Tax Court

Pro golfer Sergio Garcia won a significant partial victory recently in  U.S. Tax Court.  In his case, Garcia v. Commissioner, 140 T.C. No. 6 (Docket 13649, Filed March 14, 2013), the IRS initially asserted that all of Sergio's endorsement income from TaylorMade was U.S. personal services income subject to U.S. tax.  Sergio, a resident of Switzerland, claimed that 85% of his contract with TaylorMade reflected his personal image and worldwide celebrity inconic status so that that income, as royalty income under the U.S.-Swiss tax treaty was exempt from U.S. income tax.

The Tax Court analyzed competing expert opinions from each side as to what the correct proportion of the endorsement income was attributable to personal services (personal appearances and golf tournament participation, etc.) and what was due to his name and likeness.  The Tax Court found that Sergio was the only "Global Icon" in TaylorMade's stable of golfers, which it defined as a premiere golfer who consistently ranks among the world''s best players, and who connects emotionally with golfers in all regions of the world, and who is a "TaylorMade Ambassador".  The Tax Court then refused to rely completely on either side's experts and instead looked to its own recent allocation case involving fellow PGA professional Retief Goosen.  In that case, Goosen v. Commissioner, 136 T.C. 547, the Tax Court found the allocation between personal services income and royalty income to be 50.50.  Here it distinguished Sergio's status and found that a 50-50 split was not appropriate for Sergio because he was TaylorMade's only "Global Icon" during the years at issue and a more prominent image status that was marketing more heavily by TaylorMade, in addition to having Sergio committed to using TaylorMade products on a "head to toe" basis, more extensively than Retief Goosen's contract.  But the Tax Court shaved the percentage of royalty income in Sergio's case down from 85% to 65%, and held that all of the U.S. source personal compensation under the endorsement agreement allocation and otherwise was subject to U.S. income taxation.

For a copy of this case, or any questions, please contact Curtis Elliott at 704-973-5328 or go to

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