141

SERGIO GARCIA, PETITIONER v. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT

Docket No. 13649–10. Filed March 14, 2013. 

P, a professional golfer and a resident of Switzerland, 

entered into an endorsement agreement with sponsor T. P 

agreed to allow T to use his image, name, and voice (image 

rights) in advertising and marketing campaigns worldwide. P 

also agreed to perform personal services for T including using 

T’s products in all his golf play, posing and acting for 

advertisements, and making personal appearances for the 

company. In return for his services and use of his image 

rights, T agreed to pay P certain compensation. P and T allocated 85% of P’s compensation to royalties (for use of his 

image rights) and 15% to personal services. P established EP, 

LLC, in the State of Delaware, which would receive the royalty payments and then pay a portion of the royalty payments 

(attributable to use of the image rights in the United States) 

to a second LLC that P established in Switzerland, LD. The 

result was that P paid no U.S. tax on the royalty payments, 

but did pay U.S. tax on the U.S. source personal service payments. R now disputes the 85%–15% allocation between royalty and personal service payments, arguing for a larger portion attributable to P’s personal services. R also claims that 

we should find the U.S. source royalty payments were made 

directly to P and disregard the form of the transaction 

involving EP and LD. R additionally claims that such royalty 

income (as well as all U.S. source personal service income) 

should be taxable to P in the United States and not exempted 

from U.S. taxation under the Convention between the United 

States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income 

(Swiss Tax Treaty). P claims that the 85%–15% allocation 

between royalty and personal service payments understated, 

142 140 UNITED STATES TAX COURT REPORTS (141) 

if anything, the royalty allocation. P disputes R’s claims 

regarding the EP/LD transaction and further claims that even 

if that transaction is disregarded (and we consider the payments to have been made directly to P), all of P’s royalty 

income, as well as a portion of his U.S. source personal service 

income, is exempt from tax in the United States under the 

Swiss Tax Treaty. Held: The payments made by T are allocated 65% to royalties and 35% to personal services. Held, further, any royalty income to P is exempt from taxation in the 

United States under the Swiss Tax Treaty. However, none of 

his U.S. source personal service income is exempt from taxation in the United States. 

Thomas V. Linguanti, Jenny A. Austin, Jason D. 

Dimopoulos, Robert F. Hudson, Jr., and Robert H. Moore, for 

petitioner. 

W. Robert Abramitis, Tracey B. Leibowitz, and Karen J. 

Lapekas, for respondent. 

GOEKE, Judge: Respondent determined deficiencies in petitioner’s Federal income tax of $930,248 and $789,518 for tax 

years 2003 and 2004, respectively, as a result of income he 

purportedly received during those years through an endorsement agreement with TaylorMade Golf Co. (TaylorMade). 

After concessions, the issues for decision are: 

(1) the extent to which payments made by TaylorMade 

under the endorsement agreement are compensation for the 

performance of petitioner’s personal services and the extent 

to which the payments are royalties for the use of petitioner’s 

image rights. We hold that the payments made by 

TaylorMade are allocated 65% to royalties and 35% to personal services; 

(2) whether the U.S. source royalty compensation is income 

to petitioner or to Long Drive Sa` rl, LLC (Long Drive). 

Because we hold that even if the U.S. source royalty compensation was income to petitioner, he is not taxable in the 

United States on any of this income, we need not address 

this issue; 

(3) whether the U.S. source royalty compensation and a 

portion of the U.S. source personal service compensation are 

taxable to petitioner in the United States. We hold that no 

royalty compensation is taxable to petitioner in the United 

States, but that all U.S. source personal service compensation is taxable to petitioner in the United States. 

(141) GARCIA v. COMMISSIONER 143

1 ‘‘The Majors’’ are the Masters, the U.S. Open, the British Open, and 

the PGA Championship. Professional golfers are largely remembered for 

how they perform in these tournaments. Although he has come close, petitioner has been unable to pull off a win in one of the Majors. 

FINDINGS OF FACT 

At the time the petition was filed, petitioner was a Spanish 

citizen residing in Switzerland. 

1. Background 

Petitioner is a professional golfer, having turned professional in 1999 after a highly successful amateur golf career. 

Since 1999 he has played golf around the world, on both the 

Professional Golfers’ Association of America Tour (PGA Tour) 

and the European Tour. From 1999 to 2004 his world golf 

ranking was: 12th at the end of 1999; 16th at the end of 

2000; 6th at the end of 2001; 4th at the end of 2002; 36th 

at the end of 2003; and 7th at the end of 2004. 

Petitioner was born in Spain, and his skill at golf and 

dynamic character attributes have made him a fan favorite 

and a world-famous celebrity. Nicknamed ‘‘El Nino’’ in his 

early years as a professional, petitioner is notable for his 

charismatic and fiery personality which differentiates him 

from most others who play ‘‘the gentleman’s game’’ for a 

living. Petitioner’s personality and his athletic image have 

helped to make him one of the most marketable golfers in 

the world, even more marketable than many of those golfers 

who rank ahead of him or who have won one of golf ’s four 

‘‘Major’’ tournaments. 1 Taken together, petitioner’s personality, image, and golf skill make up his personal brand. 

Since 2001 petitioner has been represented by IMG, a 

sports entertainment media company that finds and presents 

to him endorsement, appearance, and golf opportunities. IMG 

also negotiates contracts on petitioner’s behalf and helps to 

manage his relationships with his various sponsors. However, petitioner makes the final decisions regarding what 

products he will endorse, what appearances he will make, 

and what golf events he will play in. Over the years petitioner has entered into a variety of endorsement agreements 

for products used both on and off the golf course, including 

sunglasses, video games, watches, real estate resorts, and 

trading cards. Sponsors value petitioner’s endorsement 

144 140 UNITED STATES TAX COURT REPORTS (141) 

2The endorsement agreement defined the term ‘‘Global Icon’’ as— 

a premiere golfer who consistently ranks among the world’s best players 

and represents and symbolizes the finest attributes of the game and 

* * * [TaylorMade]. A person who connects emotionally with golfers in 

all regions of the world, and is synonymous with the core brand values 

of * * * [TaylorMade], and who becomes a * * * [TaylorMade] ambassador. The relationship between a Global Icon and the company is multifaceted. Continued investment by the company to enhance the athlete’s 

performance and develop his persona will maximize both parties’ longterm investments in the relationship. 

3While petitioner was the only golfer in the Adidas family identified as 

a Global Icon, Adidas identified certain other prominent sports figures as 

Global Icons, including David Beckham (soccer), Anna Kournikova (tennis), 

and Steffi Graf (tennis). 4 In addition to so-called head to toe deals which also involved name and 

image rights, there are two other primary types of golf endorsement contracts. The most common type of endorsement contract (representing approximately 85–90% of all contracts) is a ‘‘wear and carry’’ contract, in 

which a golfer is paid to use specific products in one or many tournaments 

but does not give up his or her image rights. Less common than ‘‘wear and 

carry’’ contracts (but more common than ‘‘head to toe’’ contracts) are contracts for a golfer to use specific products and to grant a company the right 

because it allows their products to be associated with his 

popular personal brand. 

2. TaylorMade Endorsement Agreement and Performance 

On October 8, 2002, petitioner entered into a seven-year 

endorsement agreement (commencing January 1, 2003, and 

ending December 31, 2009) with TaylorMade under which he 

would become a TaylorMade ‘‘Global Icon’’, 2 around whom 

TaylorMade would build its brand. At the time the endorsement agreement was signed TaylorMade had endorsements 

and/or use agreements with nearly 200 professional golfers, 

but petitioner was the only one who held the Global Icon 

title. Under the endorsement agreement petitioner would 

exclusively wear and use golf products produced by 

TaylorMade and associated brands (TaylorMade products), 

and TaylorMade would receive the right to use petitioner’s 

image, likeness, signature, voice, and any other symbols 

associated with his identity to promote TaylorMade products. 

The associated brands were Adidas (which owned 

TaylorMade’s parent company) 3 and Maxfli (which was 

acquired by TaylorMade at the end of 2002 and produced golf 

balls). The endorsement agreement was a ‘‘head to toe’’ 4

(141) GARCIA v. COMMISSIONER 145

to use the golfer’s image rights to promote the products used. 5Petitioner’s caddy was also required to wear TaylorMade clothing, 

shoes, and headgear during professional events. 6Petitioner played in more than 20 events in both 2003 and 2004. 

7During such days petitioner would shoot advertisements for 

TaylorMade and entertain customers and clients of TaylorMade (among 

other promotional activities). 

deal; products which petitioner was required to use included 

golf clubs, golf balls, golf gloves, golf bags, shoes, clothing, 

hats, and essentially any other golf product he would use in 

a professional event. 

At the time TaylorMade signed petitioner to the endorsement agreement TaylorMade was seeking to redefine its 

brand as part of a larger strategy to focus the company on 

high-performance golf products. TaylorMade signed petitioner to the endorsement agreement because he would add 

a ‘‘cool’’, ‘‘athletic’’, and ‘‘competitive’’ element to the 

TaylorMade brand which would help them ‘‘appeal to 

competitive golfers, younger golfers, athletic golfers, and 

golfers that wanted to have a little bit of fun.’’ As its only 

Global Icon, petitioner was the centerpiece of TaylorMade’s 

marketing efforts; he featured prominently on TaylorMade’s 

worldwide Web site, in TaylorMade’s TV and print 

advertisements, point-of-sale materials (such as racks 

holding golf clubs and balls at sporting goods stores), and 

other forms of advertising. 

As previously discussed, under the endorsement agreement 

petitioner was obligated to exclusively use certain 

TaylorMade products, both on and off the golf course. 5

TaylorMade also received the right to ‘‘fully exploit the 

Endorsement’’ and to use petitioner’s image rights in doing 

so (without making a royalty payment each time it used petitioner’s image rights). Petition had certain other obligations, 

including: encouraging cross-promotion of TaylorMade products with his other corporate sponsors; playing in at least 20 

professional golf events each year; 6 acting in a courteous and 

professional manner, including not breaking the law, using 

performance-enhancing drugs, or committing an act ‘‘violating public morality or decency’’; completing at least 12 

combined service and personal appearance days each year; 7

using ‘‘diligent efforts’’ to be available to test TaylorMade 

products; and generally supporting TaylorMade products and 

146 140 UNITED STATES TAX COURT REPORTS (141) 

8Depending on the year and which TaylorMade products he did use, petitioner might forfeit some or all of the bonus remuneration should he fail 

to use some or all of the TaylorMade products which he was required to 

use. 

promoting goodwill toward the TaylorMade brand. There 

were many other minor obligations petitioner had under the 

endorsement agreement, such as using reasonable efforts to 

ensure his TaylorMade trademarks were visible. 

Petitioner would incur various penalties for not fulfilling 

his obligations under the endorsement agreement. For 

example, had he failed to play in 20 professional golf events 

in a given year, his base remuneration (discussed further 

infra) would have been reduced pro rata. Failure to comply 

with his other obligations would possibly have resulted in (at 

TaylorMade’s discretion) other financial penalties or termination of the endorsement agreement. However, there would 

be no penalty if TaylorMade failed to use the service or personal appearance days in any contract year. 

TaylorMade also had various obligations under the 

endorsement agreement, most of which involved supplying 

petitioner with its products and paying him. Petitioner’s base 

remuneration for years 2003 through 2005 was $7 million, 

after which time his base remuneration depended on his 

average world ranking at the end of the year, from a high 

of $9 million for a 1st place rank to a low of $3 million 

should he be ranked 21st or lower. Petitioner’s base remuneration for years 2004 through 2009 could also be calculated 

under an alternative method (more favorable to petitioner) if 

TaylorMade’s products sold well during the years 2003 

through 2009. He could also earn bonuses for each Major 

tournament he won while using the products which he was 

required to endorse. 8

The original endorsement agreement did not specify the 

percentage of the remuneration attributable to petitioner’s 

personal services and the percentage attributable to his 

image rights. TaylorMade had the option to renegotiate the 

endorsement agreement should petitioner fall to 40th place 

or lower in the world rankings at any time during the contract period. If TaylorMade opted to renegotiate and the parties could not come to an endorsement agreement after 30 

(141) GARCIA v. COMMISSIONER 147

days, TaylorMade had the option to terminate the endorsement agreement. 

In March 2003 a dispute arose between petitioner and 

TaylorMade regarding the Maxfli brand of golf balls which 

petitioner was required to use. Petitioner believed the balls 

were not suitable for his use and returned to using a 

competitor’s brand. At the time petitioner stopped using 

Maxfli balls TaylorMade had already spent several million 

dollars developing an advertising campaign for the Maxfli 

brand featuring petitioner. TaylorMade was forced to scuttle 

the portion of this campaign featuring petitioner as a result 

of his use of a competitor’s ball because the advertising was 

no longer ‘‘authentic’’. The parties had difficulty resolving the 

dispute but eventually agreed to amend the endorsement 

agreement in certain ways. 

The first amended endorsement agreement was executed 

on August 21, 2003. This amended endorsement agreement 

reduced petitioner’s 2003 base remuneration to $4 million 

(from $7 million). It also reduced base remuneration 

(including petitioner’s base pay under the alternative method 

involving TaylorMade sales, which remained at $7 million) 

by one-seventh for each later year in which petitioner failed 

to use a Maxfli ball for the entirety of the year in all golfing 

activities. The first amended endorsement agreement did not 

substantially change the bonus remuneration payments other 

than to add a penalty for not using a Maxfli ball should he 

win a Major tournament during 2003. The first amended 

endorsement agreement also added a provision regarding 

division of payments for use of petitioner’s image rights and 

his personal services: 15% of remuneration (both base and 

bonus) would be paid to petitioner for his personal services 

and 85% of remuneration would be paid to Even Par, LLC 

(Even Par), which had been granted petitioner’s image rights 

licensed by TaylorMade for use in the United States (discussed further infra). Finally, the first amended contract 

specified that petitioner would be available for two producttesting days each year of the contract. On such days petitioner would use TaylorMade products and critique them. 

148 140 UNITED STATES TAX COURT REPORTS (141) 

9Petitioner continued to use a competitor’s ball into 2004 but then returned to using a Maxfli ball. 10 Base remuneration under this alternative computation method would 

be reduced by one-seventh should petitioner fail to use a Maxfli ball during 

all golfing activities during the specific year. 11The structure of the related companies is not pertinent to the ultimate 

decisions in this Opinion. This information is provided for background purposes. 

Several months after the first amended contract was 

signed, petitioner was still not using a Maxfli ball, 9 and the 

parties agreed to amend the endorsement agreement a 

second time. In addition to the remuneration reductions in 

the first amended endorsement agreement, the second 

amended endorsement agreement: (1) reduced 2004 base 

remuneration to $4.5 million; (2) reduced 2005 base remuneration to approximately $5.5 million ($4.75 million if petitioner failed to use a Maxfli ball in all golfing activities 

during that year); (3) added an alternative base remuneration calculation for 2004 and 2005 should petitioner finish in 

the top 10 in the world golf rankings; 10 and (4) removed the 

provision of the endorsement agreement allowing 

TaylorMade to renegotiate (and potentially terminate) the 

endorsement agreement should petitioner finish in 40th place 

or lower in the world golf rankings. 

TaylorMade did not fully use petitioner’s service or personal appearance days in either 2003 or 2004. It is unclear 

from the evidence and testimony exactly how many service, 

personal appearance, and product-testing days TaylorMade 

used each year. However, it appears that petitioner participated in a total of 10 service, personal appearance, and 

product-testing days in 2003 and a total of 9 such days in 

2004. The personal appearances involved playing golf with 

TaylorMade clientele, attending certain company events 

(such as dinners), and visiting stores. These events took 

place in several countries, including Ireland, the United 

States, Japan, Spain, and Portugal. 

3. Companies Related to Petitioner 11

On May 22, 2003, Long Drive was incorporated in Switzerland and thereafter reached an endorsement agreement with 

Swiss authorities regarding the manner in which it would be 

(141) GARCIA v. COMMISSIONER 149

12 Even Par also received payments for use of petitioner’s image right 

used outside the United States and paid those amounts to a Netherlands 

company wholly owned by petitioner. The parties agree that remuneration 

for the non-U.S. image rights is not taxable in the United States and it 

need not be further addressed. 

taxed under Swiss law. Petitioner owned 99.5% of Long 

Drive, and the remaining 0.5% was owned by his financial 

adviser, Gonzalo Rodriguez-Fraile. Even Par was formed in 

Delaware on December 12, 2002. Petitioner owned 99.8% of 

Even Par, and the remaining 0.2% was owned by his father, 

Victoriano Garcia. 

Petitioner sold Long Drive his image rights licensed by 

TaylorMade for use in the United States under the endorsement agreement (U.S. licensed image rights). In return petitioner received a promissory note from Long Drive payable 

over seven years. Next, the U.S. licensed image rights were 

assigned by Long Drive to Even Par, which in return agreed 

to pay all amounts collected from TaylorMade in connection 

with those rights directly to Long Drive (which would then 

pay petitioner in satisfaction of the promissory note). 12

Because of the manner in which the Swiss authorities agreed 

to tax the payments made to Long Drive from Even Par, the 

structure created an advantageous system for petitioner; his 

U.S. royalty payments would not be taxed in the United 

States and would instead be taxed at lower rates under 

Swiss law (as per the endorsement agreement between the 

Swiss authorities and Long Drive). 

As previously stated, the first amended endorsement 

agreement (but not the original) contained a provision 

assigning 85% of the payments to Even Par (for 

TaylorMade’s use of petitioner’s image rights, both within 

and outside the United States) and 15% to petitioner (for his 

personal services, both within and outside the United 

States). TaylorMade made each payment under the endorsement agreement to IMG, which would take its expenses and 

then pay 85% of the remaining amount to Even Par and 15% 

to petitioner. 

On each of his Forms 1040–NR, U.S. Nonresident Alien 

Income Tax Return, for 2003 and 2004 petitioner reported a 

portion of the personal service payments as his U.S. source 

income effectively connected with the conduct of a trade or 

business within the United States. He did not report any of 

150 140 UNITED STATES TAX COURT REPORTS (141) 

13 All Rule references are to the Tax Court Rules of Practice and Procedure. 

the royalty payments made to Even Par. Even Par filed tax 

returns as a partnership, reporting only gross royalty income 

and matching royalty expenses (which it deducted from the 

gross royalty income, leaving no taxable income). Even Par’s 

returns stated that the royalty payments were taxable only 

under Swiss law. 

4. Other Information 

On March 17, 2010, respondent issued a notice of deficiency to petitioner for 2003 and 2004 determining deficiencies of $930,248 and $789,518, respectively. Petitioner 

timely filed a petition contesting the deficiencies. 

OPINION 

I. Burden of Proof 

Generally, taxpayers bear the burden of proving, by a 

preponderance of the evidence, that the determinations of the 

Commissioner are incorrect. Rule 142(a); 13 Welch v. 

Helvering, 290 U.S. 111, 115 (1933). Deductions are a matter 

of legislative grace, and taxpayers bear the burden of proving 

that they have met all requirements necessary to be entitled 

to the claimed deductions. Rule 142(a); INDOPCO, Inc. v. 

Commissioner, 503 U.S. 79, 84 (1992). The parties agree that 

respondent bears the burden of proof on certain issues raised 

in an amendment to respondent’s answer. However, because 

we decide all issues on the basis of the preponderance of the 

evidence, we need not address the burden of proof further. 

See Knudsen v. Commissioner, 131 T.C. 185 (2008). 

II. Allocation of TaylorMade Payments—Personal Services 

and Royalties 

A. Stipulated Issues, General Arguments, Allocation in 

First Amended Endorsement agreement, and Expert 

Reports 

The parties have stipulated that during 2003, 69% of petitioner’s personal service income was derived from sources 

within the United States and the remaining 31% was derived 

from sources outside the United States. The parties have also 

(141) GARCIA v. COMMISSIONER 151

stipulated that during 2004, 68% of petitioner’s personal 

service income was derived from sources within the United 

States and the remaining 32% was derived from sources outside the United States. Finally, the parties have stipulated 

that any portion of the TaylorMade payments which we 

determine to be royalties paid for the use of petitioner’s 

image rights shall be treated as 50% U.S. source income and 

50% foreign source income. 

In his notice of deficiency respondent took the position that 

all payments made by TaylorMade under the endorsement 

agreement were compensation for petitioner’s personal services. Respondent has since abandoned that position and 

instead argues that ‘‘[t]he vast majority of the remuneration 

* * * is attributable to the personal services Petitioner rendered to Taylor Made.’’ Petitioner claims that the first 

amended endorsement agreement’s 85%–15% allocation 

between royalty and personal service payments, if anything, 

understated the royalty allocation. 

One of petitioner’s arguments is that we should respect the 

85%–15% allocation in the first amended endorsement agreement as the product of an arm’s-length negotiation between 

two unrelated parties with adverse tax interests. See O’Dell 

& Co. v. Commissioner, 61 T.C. 461, 468 (1974); Bemidji 

Distrib. Co. v. Commissioner, T.C. Memo. 2001–260, 2001 

Tax Ct. Memo LEXIS 295, at *18 (‘‘adverse tax interests 

deter allocations which lack economic reality’’), aff ’d sub 

nom. Langdon v. Commissioner, 59 Fed. Appx. 168 (8th Cir. 

2003). Petitioner claims that he and TaylorMade had adverse 

tax interests because he wished to have a higher percentage 

of his pay consist of royalties (on which he would pay taxes 

only in Switzerland), and TaylorMade wished to satisfy its 

legal withholding requirements and not damage its reputation by using an allocation which was indefensible. However, 

TaylorMade’s CEO testified that ‘‘it was irrelevant to me 

whether it was 85/15 or 50/50.’’ Similarly, TaylorMade’s outside counsel testified that petitioner’s team took the lead on 

the allocation issue and that TaylorMade did not put ‘‘a 

whole lot of effort’’ into it. In addition, after reviewing the 

facts of this case, we conclude that the 85%–15% allocation 

does not comport with the economic reality of the endorsement agreement (discussed further infra). As a result, we 

152 140 UNITED STATES TAX COURT REPORTS (141) 

14Mr. Fort assigned no value to petitioner’s product testing or other provisions of the endorsement agreement. 

will not adopt the 85%–15% allocation stated in the first 

amended endorsement agreement. 

The parties have introduced four expert reports (one from 

respondent, three from petitioner) regarding the allocation 

issue. Respondent’s expert witness, Mark Roesler, found that 

under the general industry standard, personal services are 

more valuable than use of image rights. Considering various 

factors, he concluded that a majority of the payments were 

attributable to petitioner’s personal services. Two of petitioner’s expert witnesses made general conclusions, based on 

the facts of the case, that TaylorMade entered into the 

endorsement agreement with petitioner primarily for use of 

his image rights. Petitioner’s third expert witness, Rodney 

Fort, examined other endorsement contracts involving petitioner, determined the value of petitioner’s service days/personal appearances using both the mean ($50,561) and 

median ($33,333) values of the other contracts, and determined the value of the ‘‘wear-and-carry’’ portion of the 

endorsement agreement to be $150,000 per year. 14 He then 

subtracted these various values from the original $7 million 

base remuneration for 2003 and 2004 to determine a range 

of values for the image rights. In percentage terms, Mr. Fort 

allocated 89% to 96% of the 2003 payments to royalties and 

83% to 92% of the 2004 payments to royalties, with the 

remainder for each year allocated to personal services. 

Although we appreciate their attempts to analyze a difficult valuation problem, we do not agree with Mr. Roesler’s 

or Mr. Fort’s ultimate conclusions regarding allocation to personal services and royalties. We have considered the analysis 

in each expert report and find those analyses to be helpful 

in reaching our holding. 

B. Discussion of Facts and Law 

‘‘Courts have repeatedly characterized payments for the 

right to use a person’s name and likeness as royalties 

because the person has an ownership interest in the right.’’ 

Goosen v. Commissioner, 136 T.C. 547, 559 (2011) (citing 

Cepeda v. Swift & Co., 415 F.2d 1205 (8th Cir. 1969), Haelan 

Lab., Inc. v. Topps Chewing Gum, Inc., 202 F.2d 866 (2d Cir. 

(141) GARCIA v. COMMISSIONER 153

1953), Boulez v. Commissioner, 83 T.C. 584 (1984), Kramer 

v. Commissioner, 80 T.C. 768 (1983), and Uhlaender v. 

Henricksen, 316 F. Supp. 1277 (D. Minn. 1970)). In Goosen 

v. Commissioner, 136 T.C. at 560, we further stated that— 

[t]he characterization of * * * [a taxpayer’s] endorsement fees and 

bonuses depends on whether the sponsors primarily paid for * * * [the 

taxpayer’s] services, for the use of * * * [the taxpayer’s] name and likeness, or for both. We must divine the intent of the sponsors and of * * * 

[the taxpayer] from the entire record, including the terms of the specific 

endorsement agreement. [Citations omitted.] 

The facts of this case are well established. Under the 

endorsement agreement petitioner would receive compensation for performing certain personal services and also for 

allowing TaylorMade to use his image rights to sell products. 

Petitioner became TaylorMade’s only Global Icon, and his 

name and/or likeness were prominently featured in 

TaylorMade’s advertisements around the world. 

Multiple witnesses, familiar with the sports advertising 

industry as a whole and with the practices of TaylorMade 

specifically, have clearly and credibly testified that both the 

use of petitioner’s image rights and the personal services 

petitioner provided (especially his use of the TaylorMade 

products while playing in professional golf events) were crucial elements of petitioner’s endorsement agreement. For 

example, TaylorMade’s chief marketing director, Robert Maggiore, testified that under the endorsement agreement 

TaylorMade received petitioner’s ‘‘brand and image and 

license. He then wears and plays our products, and then we 

tell the story about all the equipment he has in play. So if 

you pull one of those pieces out, like the house of cards kind 

of falls.’’ 

We concur with the testimony of Mr. Maggiore and other 

witnesses that both the use of petitioner’s image rights and 

the personal services he provided were critical elements of 

the endorsement agreement. However, it does not directly 

follow that a 50–50 allocation between royalty and personal 

service compensation is called for simply because both elements were critical. 

We have previously decided cases involving sports stars 

where allocation of payments for personal services and royalties was at issue. In Kramer v. Commissioner, 80 T.C. 768, 

154 140 UNITED STATES TAX COURT REPORTS (141) 

15 Certain evidence and testimony indicated that the sports endorsement 

business is one which changes rapidly. 16 It appears Mr. Goosen was able to comply with the clothing requirements of his TaylorMade endorsement agreement even though he was also 

required to wear certain Izod clothing. 

involving an endorsement agreement between a retired 

tennis champion and Wilson Sporting Goods Co. during 1975 

and 1976, we allocated 70% of payments to royalties and 30% 

of payments to personal services. However, given the somewhat different facts of that case, combined with its age, 15 we 

do not give much weight to the 70%–30% allocation reached. 

In addition, we have a recent case involving a factual situation much more similar to petitioner’s which makes for a 

better comparison. 

Goosen v. Commissioner, 136 T.C. 547, involved a prominent professional golfer, Retief Goosen, under a contract with 

TaylorMade during the years 2002 and 2003 to endorse and 

use certain TaylorMade products and allow TaylorMade to 

use his image rights to market those products. Unlike petitioner, Mr. Goosen was not a TaylorMade Global Icon and 

was not signed to a ‘‘head to toe’’ contract with TaylorMade. 

Rather, Mr. Goosen was identified as a TaylorMade ‘‘brand 

ambassador’’ who was required only to use and endorse 

TaylorMade clothing, headgear, golf clubs, golf club head 

covers, and golf bags. Mr. Goosen also had to complete eight 

total service and personal appearance days annually for 

TaylorMade, as well as an unstated amount of product 

testing. In addition, Mr. Goosen was required to play in ‘‘a 

minimum of 20 PGA Tour tournaments and 11 European 

Tour tournaments per year’’ or his endorsement fees would 

be prorated. Id. at 553. Mr. Goosen was paid a $400,000 

annual endorsement fee by TaylorMade, with bonuses available should he attain a higher world golf ranking or win 

specified tournaments. 

In addition to his TaylorMade endorsement agreement, Mr. 

Goosen had an endorsement agreement with Acushnet Co. 

(Acushnet) to use Titleist golf balls and golf gloves which 

paid him $350,000 and $375,000 in the two years at issue. 

Mr. Goosen also had an endorsement agreement with Izod 

Club (Izod) to wear certain clothing while playing golf, 16

which paid him approximately $35,000 annually. Under 

these two endorsement agreements Mr. Goosen agreed to 

(141) GARCIA v. COMMISSIONER 155

complete a total of six service and personal appearance days 

annually, as well as to do product testing for Acushnet. 

Considering the specific facts of Goosen, we held that a 50– 

50 split between royalty and personal service payments was 

appropriate for Mr. Goosen’s TaylorMade endorsement agreement (as well as his Acushnet and Izod endorsement agreements). In doing so, we ‘‘highlighted the contrast between 

TaylorMade’s on-course endorsements with’’ Mr. Goosen and 

petitioner’s TaylorMade endorsement agreement. Id. at 561– 

562. We noted that Mr. Goosen— 

ranked either near or higher than Mr. Garcia on the PGA Tour and 

World Golf Rankings during the years at issue. * * * [Mr. Goosen] had 

won a Major Championship as well as several high-profile tournaments 

on the European Tour. In contrast, Mr. Garcia had failed to win a Major 

Championship and had few significant wins. Despite this difference in 

golf performance, both * * * [Mr. Goosen] and Mr. Garcia entered into 

substantially similar endorsement agreements with TaylorMade. In 

addition, Mr. Garcia was paid substantially more than * * * [Mr. 

Goosen] despite his lesser record. TaylorMade valued Mr. Garcia’s flash, 

looks and maverick personality more than * * * [Mr. Goosen’s] cool, 

‘‘Iceman’’ demeanor. We find that TaylorMade, Izod and Acushnet valued 

* * * [Mr. Goosen’s] image, and they paid substantial money for the 

right to use his name and likeness. [Id.] 

Considering the facts and prior caselaw, we do not believe 

a 50–50 split between royalty and personal service payments 

is appropriate in petitioner’s case. Petitioner was 

TaylorMade’s only Global Icon during the years at issue; he 

was the centerpiece of TaylorMade’s marketing efforts and 

the golfer around whom TaylorMade sought to build its 

brand. The same cannot be said of Mr. Goosen. We find that 

petitioner’s status as a TaylorMade Global Icon, especially 

the extent to which TaylorMade used his image rights to sell 

its products, is strong evidence that his TaylorMade endorsement agreement was more heavily weighted toward image 

rights than Mr. Goosen’s. 

Respondent argues that petitioner was paid more than Mr. 

Goosen primarily because petitioner’s TaylorMade endorsement agreement required more personal services than Mr. 

Goosen’s and ‘‘Petitioner’s charisma and playing style * * * 

increased the value of his services.’’ We agree with 

respondent that petitioner’s personal services are worth more 

than Mr. Goosen’s, all else being equal. However, we are not 

156 140 UNITED STATES TAX COURT REPORTS (141) 

17 It was not established how many service days and personal appearances Mr. Goosen actually completed for TaylorMade. 

convinced that petitioner’s TaylorMade endorsement agreement required more personal services than Mr. Goosen’s, 

especially when one considers the relative values of different 

personal services. 

Many of the personal service requirements of petitioner’s 

and Mr. Goosen’s TaylorMade endorsement agreements are 

similar. For example, both had a responsibility to endorse 

the required products and both had clauses in their endorsement agreements allowing TaylorMade to fire them should 

they act in an immoral or illegal manner. There were some 

notable differences, however. 

Petitioner was required to complete a total of 12 service 

and personal appearance days each year for TaylorMade, 

while Mr. Goosen was required to complete only 8. However, 

Mr. Goosen’s TaylorMade agreement was not a ‘‘head to toe’’ 

deal, and he was required to complete six additional service 

and personal appearance days for Acushnet and Izod. It thus 

appears that Mr. Goosen was required to perform more 

service and personal appearance days per endorsed product 

than petitioner. In addition, the testimony and other evidence show that service and personal appearance days did 

not constitute a large portion of the value of petitioner’s personal services; TaylorMade did not fully use the 12 service 

and personal appearance days in either 2003 or 2004 (using 

10 or fewer each year), 17 and TaylorMade’s CEO, Mark 

King, testified that any personal appearances petitioner 

made were ‘‘gravy’’ to TaylorMade. Considering these facts, 

we find the fact that petitioner’s TaylorMade endorsement 

agreement required him to complete more service and personal appearance days than Mr. Goosen is of nominal importance. 

TaylorMade required Mr. Goosen to play in more professional golf events while using endorsed products each year 

(31) than it required petitioner to play in (20). We believe 

that petitioner’s use of endorsed products during his professional play was by far the most valuable personal service he 

provided to TaylorMade; his pay was reduced by millions of 

dollars when he chose not to play a Maxfli golf ball, 

TaylorMade used shots of petitioner using its products 

(141) GARCIA v. COMMISSIONER 157

18 In addition, as discussed supra and infra, other testimony and other 

evidence reflected that TaylorMade did not place a great deal of value on 

petitioner’s service and personal appearance days or on his product testing. 19Specifically, Mr. King testified that TaylorMade ‘‘probably [did] not’’ 

listen to petitioner’s product recommendations and that the fact petitioner 

tested TaylorMade products ‘‘certainly * * * [wasn’t] a primary message’’ 

of TaylorMade’s advertising, if it was mentioned at all. 

during professional events in its ads, and multiple witnesses 

testified to the great importance of petitioner’s use of 

TaylorMade products while playing. 18 Respondent agrees 

that ‘‘Petitioner’s performance for Taylor Made on the PGA 

and European golf tours’’ was of ‘‘predominant importance to 

the parties.’’ Given the facts regarding the high value of petitioner’s play while using TaylorMade products, we find the 

significantly lower number of professional events TaylorMade 

required petitioner to play in compared to Mr. Goosen is 

strong evidence that his TaylorMade endorsement agreement 

was less proportionately weighted toward personal services 

than Mr. Goosen’s. 

Petitioner was required to complete two product-testing 

days for TaylorMade each year, but it is unclear how many 

such days Mr. Goosen was required to complete for the lesser 

number of TaylorMade products which he endorsed. In addition, Mr. King gave testimony indicating that petitioner’s 

product-testing days (even if they did have some value to 

TaylorMade) were of little importance in comparison with 

other personal services. 19 As a result, we find any differences 

in required product-testing days between petitioner’s and Mr. 

Goosen’s TaylorMade endorsement agreements were not of 

great significance. 

Respondent has cited other personal services not required 

of Mr. Goosen which were required of petitioner as a 

TaylorMade Global Icon. Such personal services include 

‘‘embod[ying] what * * * [TaylorMade] is trying to portray to 

the marketplace and to the consumers’’, playing golf ‘‘with 

style and charisma’’, and representing TaylorMade’s values 

even when petitioner is ‘‘walking down the street’’. However, 

these are amorphous concepts, and we find they are of negligible importance compared to the other personal services 

required under the endorsement agreement. We also find certain other requirements of petitioner (such as the requirement that he encourage cross-promotion of TaylorMade with 

158 140 UNITED STATES TAX COURT REPORTS (141) 

other brands he endorsed) to be similarly negligible in 

comparison with the other personal service requirements. 

C. Conclusion Regarding the Allocation Issue 

We have previously recognized that precision in making an 

allocation between royalty and personal service payments ‘‘is 

unattainable, [but that] we must do the best we can with the 

evidence presented.’’ Goosen v. Commissioner, 136 T.C. at 

562 (citing Kramer v. Commissioner, 80 T.C. 768, DeMink v. 

United States, 448 F.2d 867, 870 (9th Cir. 1971), Commissioner v. Ferrer, 304 F.2d 125, 135 (2d Cir. 1962), rev’g 35 

T.C. 617 (1961), and Ditmars v. Commissioner, 302 F.2d 481, 

488 (2d Cir. 1962), rev’g T.C. Memo. 1961–105). Considering 

all the surrounding facts and circumstances, we find that 

65% of the endorsement fees petitioner received represented 

royalty compensation and 35% represented personal service 

compensation. 

III. Effect of Swiss Tax Treaty 

The parties agree that petitioner is a resident of Switzerland and that the Convention for the Avoidance of Double 

Taxation With Respect to Taxes on Income, U.S.-Switz., Oct. 

2, 1996, Tax Treaties (CCH) para. 9101.001 (Swiss Tax 

Treaty), applies to him. However, the parties disagree on 

what portion of petitioner’s TaylorMade endorsement income 

is taxable to him in the United States under that treaty. 

Petitioner argues that only the personal service income 

attributable to his wearing TaylorMade products while 

playing golf is taxable in the United States and that the royalty income as well as the personal service income attributable to his other personal services is taxable only in 

Switzerland. Respondent contends that all income at issue is 

taxable in the United States. 

Petitioner also notes that respondent may not have properly raised the issue of ‘‘How the U.S.-Swiss Treaty Applies 

to Income Garcia Earns From TaylorMade.’’ However, we 

find respondent adequately raised the issue regarding 

application of Article 17, Artistes and Sportsmen, of the 

Swiss Tax Treaty to petitioner’s royalty payments in his 

second amended answer when he stated that ‘‘Any U.S.- 

source royalties paid under the * * * [endorsement agreeVerDate Nov 24 2008 11:16 Jul 03, 2014 Jkt 372897 PO 20012 Frm 00018 Fmt 3857 Sfmt 3857 V:\FILES\BOUND VOL. WITHOUT CROP MARKS\B.V.140\GARCIA JAMIE
(141) GARCIA v. COMMISSIONER 159

ment] were paid for Petitioner’s personal activities in the 

U.S. as a sportsman within the meaning of Article 17(1) of 

the Swiss Treaty.’’ 

A. Royalty Income 

Respondent argues that the compensation for use of petitioner’s U.S. image rights is income to petitioner rather than 

to Long Drive because petitioner’s endorsement agreement 

with Long Drive under which petitioner sold Long Drive his 

U.S. image rights licensed by TaylorMade was an impermissible assignment of income. Respondent also argues that 

petitioner’s endorsement agreement with Long Drive lacks 

economic substance. Respondent claims that we should deem 

the image right payments to have been made to petitioner 

directly and then further argues that that income is taxable 

in the United States under the Swiss Tax Treaty. Because 

we find that even if the image right payments were income 

to petitioner (rather than Long Drive) they are not taxable 

in the United States under the Swiss Tax Treaty, we need 

not address respondent’s arguments regarding assignment of 

income or economic substance. 

Article 12(1) of the Swiss Tax Treaty, Tax Treaties (CCH) 

para. 9101.12, at 185,019, provides that ‘‘Royalties derived 

and beneficially owned by a resident of a Contracting State 

shall be taxable only in that State.’’ Article 12(2) provides 

that— 

[t]he term ‘‘royalties’’ as used in this Convention means payments of any 

kind received as a consideration for the use of, or the right to use, any 

copyright of literary, artistic, or scientific work (but not including motion 

pictures, or films, tapes or other means of reproduction for use in radio 

or television broadcasting), any patent, trademark, design or model, 

plan, secret formula or process, or other like right or property, or for 

information concerning industrial, commercial, or scientific experience. 

The term ‘‘royalties’’ also includes gains derived from the alienation of 

any such right or property which are contingent on the productivity, use, 

or disposition thereof. [Id.; emphasis supplied.] 

Petitioner argues that the payments he received from 

TaylorMade for use of his image rights are royalties as 

defined by article 12(2) and are therefore taxable only in 

Switzerland under article 12(1). 

Respondent disagrees with petitioner that article 12 governs the taxability of the image right payments. Instead, 

160 140 UNITED STATES TAX COURT REPORTS (141) 

respondent contends that those payments are governed by 

Article 17, Artistes and Sportsmen. Article 17(1) provides 

that ‘‘income derived by a resident of a Contracting State as 

an entertainer, such as a theatre, motion picture, radio, or 

television artiste, or a musician, or as a sportsman, from his 

personal activities as such exercised in the other Contracting 

State may be taxed in that other State.’’ 

In support of his argument, respondent cites the Department of the Treasury Technical Explanation of the Convention Between the United States of America and the Swiss 

Confederation for the Avoidance of Double Taxation With 

Respect to Taxes on Income (Oct. 2, 1996), Tax Treaties 

(CCH) para. 9145 (Treasury Technical Explanation). Petitioner agrees with respondent that the Treasury Technical 

Explanation is useful in interpreting the Swiss Tax Treaty, 

and we concur. See Kolovrat v. Oregon, 366 U.S. 187, 194 

(1961) (‘‘While courts interpret treaties for themselves, the 

meaning given them by the departments of government 

particularly charged with their negotiation and enforcement 

is given great weight.’’); see also N.W. Life Assur. Co. of Can. 

v. Commissioner, 107 T.C. 363, 385 (1996) (finding the 

Treasury Technical Explanation to another tax treaty to be 

‘‘persuasive’’). Regarding article 17, the Treasury Technical 

Explanation, Tax Treaties (CCH) para. 9145, at 185,242, 

states that ‘‘In determining whether income falls under 

Article 17 or another article, the controlling factor will be 

whether the income in question is predominantly attributable 

to the performance itself or other activities or property 

rights.’’ (Emphasis supplied.) It further states that— 

[a]rticle 17 applies to all income connected with a performance by an 

entertainer, such as appearance fees, award or prize money, and a share 

of the gate receipts. Income derived from a Contracting State by a performer who is a resident of the other Contracting State from other than 

actual performance, such as royalties from record sales and payments for 

product endorsements, is not covered by this Article, but by other articles of the Convention, as appropriate, such as Article 12 (Royalties) 

* * *. For example, if an entertainer receives royalty income from the 

sale of live recordings, the royalty income would be exempt from source 

country tax under Article 12, even if the performance was conducted in 

the source country, although he could be taxed in the source country with 

respect to income from the performance itself under * * * [Article 17]. 

[Id.; emphasis supplied.] 

(141) GARCIA v. COMMISSIONER 161

20Similar to the Treasury Technical Explanation example, images of petitioner playing in professional golf events or posing/acting in TaylorMade 

shoots were used in TaylorMade advertisements. 

The parties agree that the Treasury Technical Explanation 

does not define the term ‘‘predominantly attributable’’. Both 

parties have made arguments regarding how we should 

interpret that phrase, but we need not delve into them 

because we find the example involving a sale of live 

recordings to be highly illustrative of the intent of the Swiss 

Tax Treaty. Even given the relationship between a live 

performance and a recording of that performance, the 

Treasury Technical Explanation states that proceeds from 

the sale of such a recording may be royalties not taxable in 

the source country under article 12. In a similar vein, we 

believe that even though petitioner’s golf play and personal 

services performed in the United States have some connection to his U.S. image rights, 20 income from the sale of such 

image rights is not predominantly attributable to his 

performance in the United States. Rather, the image rights 

are a separate intangible that generated royalties (as defined 

by article 12(2)) for petitioner when TaylorMade paid him for 

their use. 

We thus find that the income petitioner received from 

TaylorMade for use of his U.S. image rights was royalty 

income not taxable in the United States under article 12(1). 

B. Personal Service Income for Services Other Than 

Wearing TaylorMade Products While Golfing 

In the first amended endorsement agreement, petitioner 

and TaylorMade allocated 85% of payments to royalties and 

15% to personal services. On his 2003 and 2004 tax returns 

petitioner included 100% of his U.S. source personal service 

income under the endorsement agreement in his U.S. taxable 

income. Petitioner did not raise in the petition the issue that 

he may have included too much of his personal service 

income in his U.S. taxable income. 

Neither party raised any argument regarding the Swiss 

Tax Treaty until nearly a year and a half after the petition 

was filed. Respondent first raised issues regarding the Swiss 

Tax Treaty, but contended only that (1) petitioner was not a 

Swiss resident to whom the treaty applied, and (2) if the 

162 140 UNITED STATES TAX COURT REPORTS (141) 

21The pretrial memorandum further states that ‘‘because Garcia was 

subject to and paid U.S. taxes on his U.S.-source personal service income 

(from TaylorMade and otherwise), his U.S.-source personal service income 

was exempt from Swiss income tax pursuant to Swiss domestic and treaty 

law.’’ 

treaty did apply to petitioner, then amounts paid to petitioner for use of his U.S. image rights were taxable in the 

United States under article 17 of the treaty. Respondent 

later conceded that his first argument was incorrect and that 

petitioner was a Swiss resident to whom the treaty applied. 

Neither before nor during trial did either party raise the 

possibility that petitioner’s personal service income for services other than wearing TaylorMade products while golfing 

might not be taxable in the United States under the Swiss 

Tax Treaty. In fact, petitioner’s pretrial memorandum concedes that ‘‘Garcia was subject to tax in the U.S. on his U.S.- 

source personal service income under either U.S. federal 

income tax law or under Article 17 of the U.S.-Swiss Tax 

Treaty.’’ 21 Petitioner’s counsel also stated at trial that petitioner would ‘‘pay the same amount of U.S. tax on all of his 

personal services income’’ whether or not respondent’s 

assignment of income and economic substance arguments 

regarding Long Drive prevailed. He further stated that petitioner ‘‘will pay and does pay the full amount of U.S. tax on 

any tournament winnings or prize money or other service 

income he receives from the United States’’ and that ‘‘Even 

if the Court were to find that more of the income should be 

allocated to personal services * * * [petitioner] will pay the 

full U.S. tax on that’’ income. 

In his posttrial opening brief petitioner for the first time 

raised the issue that a portion of his U.S. source personal 

service income might not be taxable in the United States. 

Respondent did not address the issue in his posttrial opening 

brief but noted in his reply brief that petitioner had previously conceded that all U.S. source personal service income 

was taxable in the United States. 

We agree with respondent that petitioner previously conceded the issue. By raising the issue when and in the 

manner he did, petitioner prejudiced respondent in that 

respondent was unable to introduce testimony and/or other 

evidence that could have supported his position that all U.S. 

source personal service income was taxable in the United 

(141) GARCIA v. COMMISSIONER 163

States. Respondent was also unable to introduce testimony 

and/or other evidence regarding the allocation of U.S. source 

personal service income attributable to petitioner’s wearing 

TaylorMade products while playing golf (which petitioner 

concedes is taxable in the United States) and other U.S. 

source personal service income (which petitioner now claims 

is not taxable in the United States). We find that petitioner 

raised the issue too late, and we will not consider it. See 

DiLeo v. Commissioner, 96 T.C. 858, 891 (1991), aff ’d, 959 

F.2d 16 (2d Cir. 1992). As a result, petitioner is liable for 

U.S. tax on all U.S. source personal service income he 

received. 

IV. Conclusion 

We hold that the compensation paid by TaylorMade under 

the endorsement agreement is allocated 65% to royalties and 

35% to personal services. We further hold that none of the 

royalty compensation is taxable to petitioner in the United 

States but that all of the U.S. source personal service compensation is taxable to petitioner in the United States. 

In reaching our holdings herein, we have considered all 

arguments made, and, to the extent not mentioned above, we 

conclude they are moot, irrelevant, or without merit. 

To reflect the foregoing, 

Decision will be entered under Rule 155

f 

.