## Facts

- Charles Johnson, an NBA player, signed Uniform Player Contracts with the San Francisco (later Golden State) Warriors, including contracts for the 1972–73 and 1973–74 seasons, and later entered another contract directly with the team.
- In summer 1974, Johnson engaged counsel for financial planning and executed an agreement granting a Panamanian corporation, Presentaciones Musicales, S.A. (PMSA), purported rights to his professional sports services for six years in exchange for $1,500 per month.
- PMSA licensed its rights and obligations to EST International Ltd. (EST), a British Virgin Islands company; EST retained 5% of revenues and remitted 95% to PMSA.
- The Warriors refused to contract with PMSA or EST; there was no contract between the team and either corporation.
- In April 1975, Johnson assigned to EST his rights under his Warriors contract, and the Warriors thereafter paid his salary directly to EST.
- For tax years 1975–1977, Johnson reported no wage or salary income from the Warriors and reported only the monthly amounts he received under the PMSA/EST arrangement.
- The IRS determined deficiencies for 1975–1977, treating the full amounts the Warriors paid to EST for Johnson’s services as income to Johnson.

## Issues

1. Whether amounts paid by the Warriors to EST for Johnson’s basketball services were includible in Johnson’s gross income despite his assignment of contract rights to EST and the interposition of PMSA/EST.

## Decision

- The Tax Court held for the Commissioner.
- The Warriors’ salary payments to EST for Johnson’s services were taxable to Johnson.
- The court sustained the asserted deficiencies for 1975–1977.

## Legal Principles

- Income from personal services is taxed to the individual who earns it, even if the individual assigns the right to receive payment to another person or entity.
- An anticipatory assignment of income does not shift tax liability when the taxpayer retains control over the earning of the income and merely directs its payment elsewhere.
- Where the payor contracts only with the individual performer and not with the interposed entity, the entity is not treated as the earner of the compensation for federal income tax purposes.
- Tax consequences follow substance: routing compensation through an intermediary that lacks an independent contractual relationship with the payor does not change who earned the income.

## Conclusion

Because Johnson personally performed the services, contracted with the Warriors in his own name, and controlled the direction of payment, the salary paid to EST was includible in his gross income for 1975–1977 under the assignment-of-income doctrine.


Johnson v. Commissioner, 78 T.C. 882 (1982)