## Facts

- Richard A. Allen, an 18-year-old high school senior and minor, signed a professional baseball player contract with the Philadelphia Phillies; his mother, Era Allen, participated in negotiations and signed because parental consent was required.
- The Phillies agreed to a $70,000 signing bonus payable over five years.
- By prearrangement in the contract, $40,000 of the bonus was to be paid directly to Era Allen and $30,000 to Richard Allen; the team was indifferent to the designated recipient so long as it secured Richard’s commitment.
- Richard Allen did not report, as his income, the bonus amounts the Phillies paid directly to his mother.
- The Commissioner determined deficiencies for 1961–1963 by including the amounts paid to Era Allen in Richard Allen’s income, relying on I.R.C. § 73 (amounts received in respect of a child’s services) and alternatively I.R.C. § 61 (gross income).

## Issues

1. Whether the portions of the signing bonus paid directly to Allen’s mother were includable in Allen’s gross income under I.R.C. § 73 or § 61.
2. If includable, whether Allen could deduct those amounts (e.g., as ordinary and necessary business expenses or as compensation paid to his mother).

## Decision

- The Tax Court held that the signing-bonus amounts paid directly to Allen’s mother pursuant to the prearranged allocation were taxable to Allen under I.R.C. § 73 or, alternatively, under § 61.
- The Tax Court held Allen was not entitled to deduct any part of the bonus amounts paid to his mother during the years at issue.
- The court sustained the Commissioner’s determinations of deficiencies for 1961–1963.

## Legal Principles

- Under I.R.C. § 73, amounts received in respect of a child’s services are taxable to the child even if paid to a parent, and tax cannot be avoided by directing the payor to remit the compensation to someone else.
- Independently, I.R.C. § 61 reaches compensation earned by the taxpayer that is redirected to another person; contractual designation of a different payee does not change the earner of the income.
- Payments to a parent will not be treated as separate compensation to the parent, or as a deductible expense of the child, absent a bona fide, arm’s-length agreement and a showing that the expenditure is an ordinary and necessary expense of the child’s trade or business.
- A parent’s consent to a minor’s contract and involvement in negotiations, without more, does not convert part of the child’s signing bonus into deductible compensation paid for parental services.

## Conclusion

The Tax Court treated the mother-directed portion of a minor athlete’s signing bonus as the athlete’s taxable income under § 73 and § 61, and denied any deduction because the arrangement reflected an allocation of the athlete’s own compensation rather than a separate, deductible business expense.


Allen v. Commissioner, 50 T.C. 466 (1968)