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Another foe for Masters golfers: IRS

Two players argue that much of their income should be classified as royalties and not taxed by the United States. The IRS disagrees.

By Kay Bell Apr 8, 2011 10:47AM

Retief Goosen and Sergio Garcia are going about their business at Augusta National, hoping to don a Masters' green jacket on Sunday. Both did pretty well in Thursday's first round.

 

Meanwhile, the professional golfers' tax attorneys are doing their jobs, trying to convince the IRS that the players' endorsement money was properly reported as royalty income, not payment for personal services.

 

The difference is important.

 

Personal services income is for wearing logo apparel, appearing in advertisements and making appearances for the sponsor at events.

 

The rest of the money is royalties, essentially payment for the professional athlete's

 

image and reputation.

And, according to tax treaties the United States has with the United Kingdom, where Goosen lives, and Switzerland, Garcia's official country of residence (of course for tax purposes), royalty income of non-residents is not taxed by the United States.

 

Guess how the two golfers classify most of their earnings? You got it, as royalties.

 

And they are arguing that because of the distinction, they don't owe the IRS as much as the agency claims they do.

 

The IRS wants an additional $165,000 in taxes and $33,000 in penalties from Goosen for endorsement income he earned in 2002 and 2003.

 

Garcia's situation could be more costly if the IRS prevails. Tax officials here say he owes Uncle Sam $1.72 million in back taxes for 2003 and 2004. No penalties have been assessed … yet.

 

Goosen filed a petition with the U.S. Tax Court in 2009 and it's now being considered by a judge. Garcia entered his petition for Tax Court hearing last June.

 

Tax lawyers say that, whatever the court decides, it will be precedent-setting.

More from Don't Mess with Taxes and MSN Money:

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3Comments
Apr 11, 2011 1:04PM
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To the tax attorneys

 

Wearing a logo and getting paid isn't a ROYALTY.

Royalties are payments made for the use of an asset, often intellectual property.

A golfer's shirt is a billboard, which does not qualify for royalties

 

I look forward to hearing the judge's decision.


Read the sentences below.  The lawyers are claiming an athlete's positive reputation is a royalty!  Fine the lawyers, please.


"Personal services income is for wearing logo apparel, appearing in advertisements and making appearances for the sponsor at events.

 The rest of the money is royalties, essentially payment for the professional athlete's

image and reputation."

 

.

Apr 10, 2011 8:03AM
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Yup..... same ol, same ol.  They can't just be happy with the fact that they are making money hand over fist.  They want to avoid paying their fair share of taxes too.  The greed never ends.  
Apr 12, 2011 10:37AM
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How about a tax code that has one tax on all income regardless of how it's made. That would put drug dealers on par with professional sports personalities and hookers. Keep it simple, ...keep it fair,.. and keep it equal and no one can complain,...er,...except the tax dodging attorney's.
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