## Facts

- Retief Goosen, a nonresident professional golfer and U.K. resident, earned substantial income from worldwide endorsement agreements during 2002 and 2003.
- Goosen entered into agreements with Acushnet, TaylorMade, Izod, Upper Deck, Rolex, and Electronic Arts granting rights to use his name and likeness and, in some contracts, requiring on-course product use and promotional activities.
- The Acushnet, TaylorMade, and Izod contracts included tournament participation expectations, proration provisions tied to minimum tournament play, and performance-based bonuses, alongside broad marketing rights.
- On his U.S. nonresident returns, Goosen treated income from Acushnet, TaylorMade, and Izod as 50% services and 50% royalties, treated Upper Deck/Rolex/Electronic Arts as 100% royalties, and reported a small fraction as U.S.-source.
- The IRS issued deficiency notices for 2002 and 2003, asserting (among other things) that the on-course endorsement income was entirely services income and that a larger portion was U.S.-source; the parties’ concessions left characterization, sourcing, and treaty-benefit questions for decision.

## Issues

1. Whether payments under the Acushnet, TaylorMade, and Izod agreements were personal-services income, royalty income, or a combination requiring allocation.
2. How to determine the U.S.-source portion of royalties from name-and-likeness rights under both on-course and off-course endorsement agreements, and whether such U.S.-source royalties were effectively connected with a U.S. trade or business.
3. Whether the 1975 or 2001 U.S.–U.K. income tax treaty reduced or eliminated U.S. tax on any portion of the endorsement income.

## Decision

- The court held that payments from Acushnet, TaylorMade, and Izod were properly allocated 50% to personal services income and 50% to royalty income.
- For royalty portions, the court determined U.S.-source percentages based on U.S. exploitation of Goosen’s name and likeness:
  - Acushnet/TaylorMade/Izod royalties: 50% U.S.-source and effectively connected with a U.S. trade or business.
  - Rolex royalties: 50% U.S.-source and not effectively connected.
  - Upper Deck royalties: 92% U.S.-source and not effectively connected.
  - Electronic Arts royalties: 70% U.S.-source and not effectively connected.
- The court denied treaty relief, holding Goosen could not benefit from provisions of either the 1975 or 2001 U.S.–U.K. income tax treaty for the endorsement income at issue.

## Legal Principles

- Endorsement contracts that combine (i) obligations to perform promotional or on-course activities and (ii) grants of rights to exploit name-and-likeness may require allocation between compensation for services and royalties for intangible-property use.
- Royalties from name-and-likeness rights are sourced based on where the rights are exploited (e.g., where related products are sold or marketing occurs), and may be apportioned between U.S. and foreign sources using available exploitation data.
- U.S.-source royalties may be treated as effectively connected with a U.S. trade or business when they are sufficiently connected to the taxpayer’s active U.S. business activities; when the royalty stream is more attenuated from the U.S. business, it may be U.S.-source but not effectively connected.
- Treaty benefits are unavailable when the taxpayer does not satisfy the applicable treaty conditions for limiting U.S. taxation of business profits or royalties, including rules permitting U.S. taxation of income attributable to U.S. business presence or U.S.-source royalty provisions.

## Conclusion

The Tax Court treated major on-course endorsement payments as hybrid consideration requiring a 50/50 split between services and royalties, sourced the royalty component by the extent of U.S. commercial exploitation, distinguished which U.S.-source royalties were effectively connected to Goosen’s U.S. golf business, and rejected claimed relief under the U.S.–U.K. tax treaties.


Goosen v. Commissioner, 136 T.C. 547 (2011)