department of the treasury internal_revenue_service washington d c commissioner tax_exempt_and_government_entities_division uniform issue list may tep rh of attention legend system a plan x excess_plan x state n state statute s dear this is in response to correspondence dated date as supplemented by correspondence dated date date date date date date date and date submitted on behalf of plan x by its authorized representatives in which a letter_ruling was requested concerning the applicability of sec_415 of the internal_revenue_code code to an excess_benefit_plan excess_plan x and the tax consequences related thereto the following facts and representations have been submitted under penalty of perjury in support of the rulings requested system a is a contributory retirement_system in state n which maintairis plan x a defined benefit retirement_plan established pursuant to state n statute for eligible employees of state n and its qualifying governmental units representatives represent that plan x and is a governmental_plan as defined in sec_414 state n board_of retirement board is intended to be qualified under sec_401 your authorized plan x is administered by the page plan x includes a mandatory employee contribution feature and certain elective contribution features your authorized representatives have represented that the only elective contributions that may be made by participants under the provisions of plan x are contributions to plan x to buy years_of_service credit in plan x for eligible prior service in other specified public employment under the provisions of plan x these purchases of years_of_service credit may only be made by after-tax contributions rollovers or trustee-to-trustee transfers your authorized representatives represented in correspondence dated date that plan x will be amended to clarify that an employer for purposes of participation in plan x is limited to entities which are state n a political_subdivision of state n or an agency_or_instrumentality of state n this amendment will also provide that no employer which is not permitted to participate in a qualified governmental pension_plan as defined in code sec_401 or sec_414 shall be permitted to participate in plan x state n has enacted legislation which authorizes the board to establish and maintain a qualified_governmental_excess_benefit_arrangement within the meaning of sec_415 of the code n accordance with this legislation excess_plan x will be adopted and implemented by state n as a part of plan x effective date a separate trust fund for the segregation of the assets of excess_plan x will be established this trust fund which will be separate and apart from the retirement fund of plan x will be established solely for the purpose of holding employer contributions intended to pay excess_benefits to plan x participants the excess_benefit trust fund will be designed as a grantor_trust for state law and federal_income_tax purposes the trustees of this separate trust fund will be the board article ll of excess_plan x provides that participation is automatic and will commence each plan_year once a retired participant or beneficiary has an excess_benefit in that plan_year the board will determine for each plan_year which retired participants and beneficiaries are required to participate in excess_plan x participation in excess_plan x will cease for any portion of a plan_year in which the retirement income of a retired participant or beneficiary is not limited by code sec_415 or if all benefit obligations under plan x to the retired participant or beneficiary have been satisfied section dollar_figure of excess_plan x provides that a participant will receive a benefit equal to the amount of retirement income that would have been payable to or with respect to a participant by plan x that could not be paid because of the application of the limitations on his retirement income under sec_415 of the code excess_benefit an excess_benefit under excess_plan x will be paid only if and to the extent the participant is receiving retirement benefits under plan x excess_plan x defines participant as a retired member or beneficiary who is entitled to benefits under excess_plan x the form of the benefit paid to a participant from excess_plan x will be the same as otherwise selected by the participant and payable under plan x the excess_benefit to which a participant is entitled under excess_plan x will be paid commencing during or within the month in which all monthly payments of retirement benefits under plan x are paid and the excess_benefits will then be paid from that month to the end of the plan_year under no circumstances will the participant be given any election to defer compensation under excess_plan x either directly or indirectly contributions to excess_plan x in addition there will be no employee page excess_plan x will be funded on a pay-as-you-go basis the board will determine the amount necessary to pay the excess_benefits under excess_plan x for each plan_year the required_contribution will be the aggregate of the excess_benefits payable to all affected participants for such plan_year and an amount determined by the board to be a necessary and reasonable expense of administering excess_plan x the amount so determined will be deposited into the trust fund under no circumstances will the contributions to fund the excess_benefits under excess pian x be credited to the trust established to fund plan x excess_plan x will not accept contributions or transfers from plan x any contributions not used to pay the excess_benefits for a current plan_year together with any income accruing to the trust fund will be used to pay the administrative expenses of excess_plan x for the plan_year any contributions not so used that remain after the payment of administration_expenses will be used to fund administrative expenses or excess_benefits of participants in future plan years state statute s currently provides for a transfer of funds from state n’s pension liability fund to excess_plan x your authorized representatives represent that the board will not implement this provision sec_5 a of excess_plan x states that in no event shall a transfer from the pension liabilities fund as referenced in state statute s be made to excess_plan x rather excess_plan x will be funded on a pay-as-you-go basis from the state appropriation prior to any deposit into plan x your authorized representatives also represent that system a will seek an amendment to state statute s which would delete the language regarding transfers from the pension liability fund and add language consistent with the provisions of excess_plan x although excess_plan x is a part of plan x no assets of plan x will be used to pay any benefits under excess_plan x excess_plan x is intended to grant a participant no more than a mere contractual right to payment of benefits under excess_plan x employer contributions made to provide benefits under excess_plan x may not be commingled with assets of plan x based upon the facts and representations stated above the following rulings are requested excess_plan x is a qualified_governmental_excess_benefit_arrangement within the meaning of sec_415 of the code the benefits payable under excess_plan x will be includible in gross_income for the taxable_year or years in which such benefits are paid or otherwise made available to a participant or a participant’s beneficiary in accordance with the terms of excess_plan x income accruing to excess_plan x is exempt from federal_income_tax under code sec_115 and sec_415 as income derived from the exercise of an essential_governmental_function pursuant to correspondence dated date your authorized representatives withdrew a fourth requested ruling sec_415 of the code and sec_1_415_b_-1 of the income_tax regulations regulations set forth the limitations on annual benefits for participants in defined benefit plans page sec_1_415_b_-1 of the regulations provides in part that the annual_benefit does not include the annual_benefit attributable to either employee contributions or rollover_contributions as described in sec_401 sec_402 sec_403 sec_403 sec_408 and sec_457 determined pursuant to the rules of paragraph b of this section this section further states that the treatment of transferred benefits is determined under the rules of paragraph b of this section sec_1_415_b_-1 of the regulations addresses elective transfer of distributable benefits and states in part that the annual_benefit provided by the transferee defined_benefit_plan does not inciude the annual_benefit attributable to the amount transferred sec_415 of the code sets forth the treatment of qualified governmental excess_benefit arrangements sec_415 provides in part that in determining whether a governmental_plan as defined in sec_414 meets the requirements of sec_415 benefits provided under a qualified_governmental_excess_benefit_arrangement shall not be taken into account sec_415 of the code defines such an arrangement as a portion of a governmental_plan which meets the following three requirements a such portion is maintained solely for the purpose of providing to participants in the plan that part of the participant's annual_benefit otherwise payable under the terms of the plan that exceeds the limitations on benefits imposed by sec_415 excess_benefits b under such portion no election is provided at any time to the participant directly or indirectly to defer compensation and c excess_benefits are not paid from a_trust forming a part of such governmental_plan unless such trust is maintained solely for the purpose of providing such benefits it has been with respect to your first requested ruling excess_plan x will be adopted and implemented under the general laws of state n as a part of plan x represented that plan x is a governmental_plan as described in sec_414 of the code it has also been represented that the only purpose of excess_plan x affected employees of state n and its qualifying governmental units who participate in plan x that portion of their benefits that would otherwise be payable under the terms of plan x except for the limitations on benefits imposed by sec_415 of the code as applicable to governmental plans the terms of excess_plan x limit participation to participants in plan x for whom benefits would exceed the limits of sec_415 of the code therefore we have determined that excess_plan x is a portion of a governmental_plan which is maintained solely for the purpose of providing to employees of state n and its qualifying governmental units who participate in plan x that part of the participants’ benefits otherwise payable under the terms of plan x that exceed the sec_415 limits and as such meets the requirements of sec_415 is to provide your authorized representatives have stated that participation in excess_plan x is mandatory and automatic and that there are no employee contributions to excess_plan x your representatives also assert that no direct or indirect election to defer compensation is provided to any participant in excess_plan x your authorized representatives have represented that the only elective contributions that may be made by participants under the provisions of plan x are contributions to plan x to buy years_of_service credit in plan x for eligible prior service in other public employment as described above thus we have determined that no direct or indirect election is provided at any page time to participants to defer compensation and accordingly the requirements of code sec_415 are met sec_415 of the code requires that the trust from which the excess_benefits are paid must not form a part of the governmental_plan which contains the excess_benefit arrangement unless such trust is maintained solely for the purpose of providing such benefits in this case excess_plan x will be funded on a pay-as-you-go basis a separate trust fund for the segregation of the assets related to excess_plan x will be established this trust fund will be established solely for the purpose of holding employer contributions intended to pay excess_benefits to affected plan x participants ' contributions to the trust fund will consist only of the amounts required to pay the excess_benefits and administrative expenses for the plan_year any contributions not used to pay the excess_benefits for a current plan_year together with any income accruing to the trust fund will be used to pay the administrative expenses of excess_plan x for the plan_year any contributions not so used that remain after the payment of administration_expenses will be used to fund administrative expenses or benefits of participants in future years therefore we have determined that the requirements of sec_415 are met since excess_plan x satisfies all of the requirements of sec_415 of the code we conclude with respect to your first ruling_request that excess_plan x is a qualified_governmental_excess_benefit_arrangement within the meaning of sec_415 of the code with respect to the second requested ruling sec_415 of the code provides that for purposes of this chapter a the taxable_year or years for which amounts in respect of a qualified_governmental_excess_benefit_arrangement are includible in gross_income by a participant and b the treatment of such amounts when so includible by the participant shall be determined as if such qualified_governmental_excess_benefit_arrangement were treated as a plan for the deferral of compensation which is maintained by a corporation not exempt from tax under this chapter and which does not meet the requirements for qualification under sec_401 ruling has already determined that excess_plan x meets the legal requirements of sec_415 of the code for qualified governmental excess_benefit arrangements accordingly the tax treatment of the amounts distributed under excess_plan x to the participants is determined as if such qualified_governmental_excess_benefit_arrangement was treated as a plan for the deferral of compensation which is maintained by a corporation not exempt from tax under this chapter and which does not meet the requirements for qualification under sec_401 sec_83 of the code provides that the excess if any of the fair_market_value of property transferred in_connection_with_the_performance_of_services over the amount_paid if any for the property is includible in the gross_income of the person who performed the services for the first taxable_year in which the property becomes transferable or is not subject_to a substantial_risk_of_forfeiture sec_1_83-3 of the income_tax regulations regulations provides that for purposes of code sec_83 the term property includes real and personal_property other than money or an unfunded and unsecured promise to pay money or property in the future oage property also includes a beneficial_interest in assets including money transferred or set_aside from claims of the transferor’s creditors for example in a_trust or escrow account sec_402 of the code provides that contributions made by an employer to an employee's trust that is not exempt from tax under sec_501 are included in the employee’s gross_income in accordance with sec_83 except that the value of the employee's interest in the trust will be substituted for the fair_market_value of the property in applying sec_83 under sec_1_402_b_-1 of the regulations an employer's contributions to a nonexempt employee's trust are included as compensation in the employee's gross_income for the taxable_year in which the contribution is made but only to the extent that the employee’s interest in such contribution is substantially_vested as defined in the regulations under sec_83 sec_451 of the code and sec_1_451-1 of the regulations provide that an item_of_gross_income is includible in gross_income for the taxable_year in which actually or constructively received by a taxpayer using the cash_receipts_and_disbursements_method of accounting under sec_1_451-2 of the regulations income is constructively received in the taxable_year during which it is credited to a taxpayer's account set apart or otherwise made available so that the taxpayer may draw on it at any time however income is not constructively received if the taxpayer’s control of its receipt is subject_to substantial limitations or restrictions various revenue rulings have considered the tax consequences of nonqualified_deferred_compensation arrangements revrul_60_31 situations 1960_1_cb_174 holds that a mere promise to pay not represented by notes or secured in any way does not constitute receipt of income within the meaning of the cash_receipts_and_disbursements_method of accounting see also revrul_69_650 1969_2_cb_106 and revrul_69_649 1969_2_cb_106 under the economic_benefit_doctrine an employee has currently includible income from an economic or financial benefit received as compensation though not in cash form economic benefit applies when assets are unconditionally and irrevocably paid into a fund or trust to be used for the employee's sole benefit 16_tc_244 aff'd per curiam 194_f2d_541 cir revrul_60_31 situation employee does not receive income as a result of the employer's purchase of an insurance_contract to provide a source of funds for deferred_compensation because the insurance_contract is the employer's asset subject_to claims of the employer's creditors in revrul_72_25 1972_1_cb_127 and revrul_68_99 c b an accordingly with respect to the second ruling_request we conclude that the benefits payable under excess_plan x will be includible in gross_income for the taxable_year or years in which such benefits are paid or otherwise made available to a participant or a participant’s beneficiary in accordance with the terms of excess_plan x with respect to your third requested ruling code sec_415 provides that income accruing to a governmental_plan or to a_trust that is maintained solely for the purpose of providing benefits under a qualified_governmental_excess_benefit_arrangement in respect of a qualified_governmental_excess_benefit_arrangement will constitute income derived from the exercise of an essential_governmental_function upon which such governmental_plan or trust will be exempt from tax under sec_115 ruling has page already determined that excess_plan x meets the legal requirements of sec_415 of the code for qualified governmental excess_benefit arrangements accordingly with respect to your third requested ruling we conclude that income accruing to excess_plan x is exempt from federal_income_tax under code sec_115 and sec_415 as income derived from the exercise of an essential_governmental_function no opinion is expressed as to the tax treatment of the transactions described herein under the provisions of any other section of either the code or regulations which may be applicable thereto this ruling letter assumes that plan x is and was a governmental_plan as described in sec_414 of the code is and was qualified under sec_401 and its related trust is and was exempt from tax under sec_501 at all times relevant thereto this ruling letter is based on the assumption that the board will not implement state statute s this ruling letter is based on the assumption that the after-tax contributions rollovers and trustee-to-trustee transfers described above are excluded from the determination of annual_benefit within the meaning of sec_1_415_b_-1 of the regulations this ruling letter is based on the assumption that the revisions described in your authorized representatives’ correspondence dated date will be made this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representatives if you wish to inquire about this ruling please contact correspondence to se t ep ra g1 please address all sincerely saegrd syjode ingrid grinde manager employee_plans technical guidance and quality assurance group enclosures deleted copy of letter_ruling notice of intention to disclose ce


internal_revenue_service number release date index number ---------------------------------- ---------------------------------------- ------------------------ --------------------------------------- ------------------------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number --------------------- refer reply to cc intl b03 plr-137481-07 date date legend corp a ty ------- ty ------- ----------------------------------------------------------------------------------------------- ---------------------- ------ ----------------------------------------------- ----------------------------------------- --------------------- -------------------------- -------------------------------------------- --------------------------- ------- corp b corp c country l country m --------- de p de q date tax_year w tax_year x dear ---------------- this is in response to your letter dated date in which you requested consent for corp a to revoke effective for tax_year x its election on behalf of corp c effective for tax_year w to use the safe_harbor method described in sec_1_901-2a in determining the amount of foreign_income_tax paid_or_accrued to country m the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination plr-137481-07 corp a is a domestic_corporation that is the common parent of an affiliated_group_of_corporations the corp a group that has filed consolidated federal_income_tax returns on a calendar_year basis for tax_year w and all subsequent tax years presently included in the corp a group are four domestic corporations that collectively own one hundred percent of corp b a country l corporation corp b owns one hundred percent of corp c also a country l corporation corp c has operations and activities in country m that are conducted through de p and de q that are treated as disregarded entities for federal_income_tax purposes corp c is a dual_capacity_taxpayer as defined in sec_1_901-2 with respect to its operations in country m corp a elected on behalf of corp c pursuant to sec_1_901-2a to apply the safe_harbor method with respect to all qualifying levies imposed by country m effective for tax_year w corp a’s safe_harbor election has not been revoked as defined in sec_1_901-2 the due_date including extensions for corp a’s tax_return for tax_year x is date which is more than days after date the date of corp a’s request to revoke the safe_harbor election sec_1_901-2a permits dual capacity taxpayers in computing foreign tax_credits for qualifying levies of each country to use either a facts and circumstances method or an elective safe_harbor method to determine the amount of a levy that is not paid in exchange for a specific_economic_benefit sec_1_901-2a describes the manner in which taxpayers may elect the safe_harbor method sec_1_901-2a provides that that election may not be revoked without the consent of the commissioner an application_for consent must be made not later than days before the due_date including extensions for the filing of the income_tax return for the first taxable_year for which the revocation is sought to be effective with certain exceptions not applicable to this situation the commissioner may make his consent to any revocation conditioned upon adjustments being made in one or more taxable years so as to prevent the revocation from resulting in a distortion of the amount of any item relating to tax_liability in any taxable_year the commissioner will normally consent to a revocation under the circumstances described in sec_1_901-2a d i through vi sec_1_901-2a provides that the commissioner will normally consent to a revocation of a safe_harbor election if the election has been in effect with respect to at least three taxable years prior to the taxable_year for which the revocation is to be effective based solely on the information and representations submitted corp a’s application_for consent to revoke the safe_harbor election made on behalf of corp c with respect to the levies of country m was made not later than days before the federal_income_tax return_due_date including extensions for tax_year x and the applicable safe_harbor plr-137481-07 elections have been in effect with respect to at least corp a’s last three taxable years prior to tax_year x accordingly consent is granted to corp a to revoke the election previously made on behalf of corp c for corp c to use the safe_harbor method described in sec_1_901-2a with respect to the levies of country m effective for tax_year x and for all subsequent tax years no opinion was requested and no opinion is expressed as to whether based upon all of the relevant facts and circumstances the amount if any paid pursuant to a levy or levies imposed by country m is not an amount_paid in exchange for a specific_economic_benefit except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely richard l chewning senior counsel branch office of the associate chief_counsel international


retief goosen petitioner v commissioner of internal revenue respondent docket no filed date p a professional golfer entered into endorsement agree- ments with sponsors acushnet taylormade izod upper deck electronic arts and rolex p agreed to allow all spon- sors to use his name face image and likeness in advertising and marketing campaigns worldwide p also agreed to per- form some services for the sponsors all endorsement agree- ments paid p a base endorsement fee acushnet taylormade and izod prorated p’s base endorsement fee if he did not annually play in a specified number of golf tournaments moreover acushnet taylormade and izod provided bonuses to p for achieving a specific finish in a pga or european tour tournament or a specified ranking on the world golf rankings p characterized the endorsement fees and bonuses from acushnet taylormade and izod a sec_50 percent personal services income and percent royalty income on his non- resident federal_income_tax returns for and p characterized the endorsement fees from upper deck elec- tronic arts and rolex as percent royalty income p reported approximately seven percent of the total endorse- ment income as u s -source income r determined that p should have characterized the endorsement fees and bonuses from acushnet taylormade and izod as percent personal services income r also reallocated a larger percentage of p’s endorsement fees as u s -source income held the endorsement fees and bonuses p received from acushnet taylormade and izod are allocated percent to personal services income and percent to royalty income held further the royalty income p received from acushnet taylormade and izod i sec_50 percent u s -source income effectively connected with a u s trade_or_business the royalty income p received from rolex i sec_50 percent u s - source income not effectively connected with a u s trade_or_business the royalty income p received from upper deck is percent u s -source income not effectively connected with a u s trade_or_business the royalty income p received from electronic arts is percent u s -source income not effec- tively connected with a u s trade_or_business held further p does not benefit from any provision under the or the u s -u k income_tax treaty aaron h bulloff stephen l kadish and matthew f kadish for petitioner lindsey d stellwagen warren p simonsen nina e chowdhry and jeffrey e gold for respondent verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports kroupa judge respondent determined that petitioner a non-domiciliary united kingdom u k resident had federal_income_tax deficiencies from income he received from world- wide endorsement agreements for and the years at issue respondent determined a dollar_figure deficiency for and a dollar_figure deficiency for after concessions there are three issues for decision the first issue is whether endorsement fees and bonuses peti- tioner a u k resident received from worldwide endorsement agreements with acushnet company acushnet taylormade golf company inc taylormade and izod club a division of oxford industries inc izod should be characterized as solely personal services income solely royalty income or part personal services income and part royalty income we hold that the income is part personal services income and part royalty income we next consider whether any income we allocated as royalty income from the acushnet taylormade and izod endorsement agreements as well as the royalty income petitioner received from worldwide endorsement agreements with upper deck company llc upper deck montres rolex s a rolex and electronic arts inc elec- tronic arts is from sources within the united_states we hold that a portion of the royalty income from all the endorsement agreements is u s -source income we finally consider whether petitioner a u k resident may benefit from provisions under the convention for the avoidance of double_taxation and the prevention of fiscal evasion with respect to taxes on income and capital_gains u s -u k date u s t u s -u k tax_treaty or the convention for the avoidance of double_taxation and the prevention of fiscal evasion with respect to taxes on income and on capital_gains u s -u k date tax_treaties cch par big_number u s -u k tax_treaty together the u s -u k tax_treaties we find he does not respondent also determined accuracy-related_penalties in the deficiency_notice but now con- cedes that petitioner is not liable for such penalties only the deficiencies remain at issue the u s -u k tax_treaty was in force date until date at which time the u s -u k tax_treaty came into force the treaties are substantially_similar and their differences do not affect our decision verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner findings_of_fact some of the facts have been stipulated and are so found we incorporate the stipulation of facts and the accompanying exhibits by this reference petitioner a citizen of south africa resided in the united kingdom at the time he filed the petition petitioner is a professional golfer he began his profes- sional golf career on the south african tour in he earned rookie of the year in his first year on the south african tour and he developed as one of the better golfers in south africa petitioner’s success in south africa allowed him to earn his tour card on the european tour in petitioner met his wife a citizen of the united kingdom shortly after joining the european tour and the two decided to make london england their permanent residence petitioner was required as a member of the european tour to play in a minimum of european tour tournaments each year to maintain his tour card petitioner annually exceeded that amount he traveled to european tour tour- naments throughout europe as well as australia and the far east petitioner became one of the most successful and pop- ular golfers on the european tour he ranked as the number one golfer on the european tour’s money list in by earning the most prize money petitioner’s golf career in the united_states though popular on the european tour petitioner was unknown in the united_states leading up to the years at issue petitioner rarely played in the united_states and he did not have a u s professional golf association tour pga tour card he instead focused on maintaining his status and high ranking on the european tour petitioner’s career took a dramatic upswing when he won the u s open golf tournament in tulsa oklahoma the u s open is one of four prestigious major championships in professional golf and professional golfers are largely remembered for how they a professional golfer must obtain and maintain a tour card to play on a particular golf tour each golf tour has its own requirements for obtaining and maintaining a tour card that often include attending a tour school and participating in a certain number of tour tournaments each year the other three major championships are the masters the british open and the pga championship verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports perform in these tournaments petitioner’s profile sky- rocketed both in the united_states and globally after winning the u s open petitioner automatically obtained his pga tour card when he won the u s open he was required as a member of the pga tour to play at least pga tour tournaments a year petitioner thereafter began to play in the united_states more regularly to maintain his pga tour card petitioner was able to satisfy the tour card requirements of both the pga and european tours because many tournaments in which he played were classified as both pga tour tournaments and european tour tournaments petitioner played in approxi- mately tournaments a year during the years at issue spending most of his time in the united_states and europe img and petitioner’s financial management petitioner hired img world inc img an international sports media entertainment group to represent him and manage his career and finances img was started in the 1960s with a handshake between attorney mark mccormack and golf legend arnold palmer img revolutionized sports marketing by promoting athletes for endorsement deals with sponsors sponsors paid to have the athlete’s name face image and likeness name and likeness associated with the sponsor img’s approach allowed clients to be concerned only with playing their respective sports img would take care of the rest img therefore expanded its role from simply pro- moting its clients to managing all its clients’ business and personal affairs img also included tax planning strategies as part of its financial planning for its clients img developed a strategy for its clients that was intended to reduce their worldwide income taxes if they were u k residents like petitioner this strategy was designed to keep certain income out of the united kingdom to effectuate this plan img directed its u k -resident clients to enter into employment contracts with two img-controlled entities european sports promotions limited esp and european tournament organizers limited eto all income from the clients’ sports-related activities or endorsements was directed to either an esp u k income or verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner an eto non-u k income bank account in liechtenstein the clients’ endorsement earnings and prize winnings inside the united kingdom were contracted and paid to esp u k income and those outside the united kingdom were con- tracted and paid to eto non-u k income each entity would issue the client a fixed annual salary and bonus the client’s bonus would not be paid until the entity subtracted expenses including the client’s salary administrative fees and img management fees petitioner’s agent at img greg kinnings mr kinnings determined that petitioner would be a prime candidate for entering into employment agreements with eto and esp petitioner agreed to be employed by esp and eto petitioner’s golf-related earnings including endorsement income prize money and appearance fees were directed to eto for the non- u k income or esp for the u k income eto non-u k income transferred petitioner’s salary and bonus to his guernsey bank account and esp u k income transferred petitioner’s salary and bonus to his london bank account this structure ensured that petitioner’s u k -source income would be repatriated to the united kingdom and his non- u k -source income would remain outside the united kingdom the u k tax authorities approved this employ- ment structure marketing of petitioner’s name and likeness img also successfully marketed petitioner to sponsors during the years at issue petitioner entered either directly or through eto non-u k income or esp u k income into several endorsement agreements and appearance agreements with sponsors endorsement agreements allow the sponsor to use the athlete’s name and likeness to advertise and promote the sponsor’s products for a specified period of time appear- ance agreements allow the sponsor to use the athlete’s name and likeness only in connection with the advertising and pro- motion of a specific tournament or event sponsors value an endorsement agreement based on the strength of an athlete’s brand or image and the sponsor’s ability to be associated with that brand or image sponsors consider the athlete’s rel- liechtenstein is known for its financial secrecy laws and was considered a tax_haven during the years at issue guernsey has also been considered a tax_haven verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports evance to a targeted market segment the athlete’s perform- ance in his sport and the athlete’s personality and appear- ance moreover sponsors generally look for athletes that carry themselves in a professional and moral manner on and off the playing field petitioner’s accomplishments on the golf course made him famous though it was his image that made him marketable golf is often called the gentleman’s game and many spon- sors see petitioner as one who epitomizes the gentleman golfer petitioner has maintained a positive image through- out his career sponsors appreciate his cool demeanor on the course his golf success his recognition around the world and his involvement in charities and other notable causes he is often branded as the goose because of his name or ice- man because he is cool under pressure petitioner’s name and likeness have been marketed in south africa and europe since the 1990s sponsors began to aggressively market petitioner in the united_states and increased his global marketing following hi sec_2001 u s open victory petitioner entered into or renegotiated six endorse- ment agreements during the years at issue petitioner entered into endorsement agreements with taylormade izod acushnet rolex upper deck and electronic arts these sponsors had global reach and were consistent with peti- tioner’s image and brand the taylormade izod and acushnet endorsement agreements collectively the on- course endorsement agreements required petitioner to wear or use their products during golf tournaments in contrast the rolex upper deck and electronic arts endorsement agreements collectively the off-course endorsement agree- ments did not have this requirement taylormade endorsement agreement taylormade makes golf clubs and golf accessories including golf bags and golf club head covers petitioner has used taylormade golf clubs his entire career because he con- siders taylormade golf clubs the best in the world eto and esp each entered into a 4-year agreement with taylormade collectively taylormade agreements in eto non-u k income and esp u k income licensed to taylormade these nicknames were also associated with characters in the popular movie top gun verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner clothing and headgear as well as the right to use petitioner’s name and likeness on taylormade golf apparel equipment and accessories the taylormade agreements required petitioner to wear taylormade to use taylormade golf clubs golf club head covers and golf bags during tournaments and golf-related activities peti- tioner also had to provide two service days to pose for tele- vision commercials for print advertising and for promotional materials as well as six personal appearance days to promote taylormade products at golf events petitioner further agreed to test and examine taylormade golf products taylormade agreed to pay a dollar_figure annual endorsement fee the taylormade agreements attributed dollar_figure of the dollar_figure to eto non-u k income and the remaining dollar_figure to esp u k income petitioner had to complete two rounds of golf in a minimum of pga tour tournaments and european tour tournaments per year to secure the taylormade endorsement fees if he failed to play in the min- imum number of tournaments the endorsement fees were prorated moreover eto and esp would receive a bonus if petitioner won a specified golf tournament tournament bonus or achieved a specified ranking on the world golf rankings ranking bonus the bonus payments were to be allocated percent to esp u k income and percent to eto non-u k income the taylormade agreements did not explain the reason for this bonus allocation to the taylormade agreements if petitioner committed any act that materially reduced the value of the taylormade agreements or violated public morality or decency morals clause taylormade terminate the taylormade agreements if petitioner was convicted of any criminal offense or found to have possessed drugs or other illegal substances illegal activities clause further reserved taylormade the right terminate reserved right the to izod endorsement agreement izod an apparel company sought petitioner to promote its men’s golf apparel line eto and esp each entered into a year endorsement agreement with izod collectively the izod agreements in eto non-u k income and esp u k income licensed to izod the right to use petitioner’s name verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports and likeness on izod apparel and accessories the izod agree- ments required petitioner to wear izod products exclusively when engaged in golf tournaments and other golf-related activities and to provide two international appearance days of up to six hours each on behalf of izod izod agreed to pay eto non-u k income a dollar_figure endorsement fee for and dollar_figure endorsement fee for izod agreed to pay esp u k income an dollar_figure endorsement fee for and a dollar_figure endorsement fee for the endorsement fees would be prorated based on tour- naments played if petitioner failed to compete in pga or european tour tournaments per year eto non-u k income and esp u k income were eligible to receive tournament bonuses and ranking bonuses under the izod agreements the total bonus payments were allocated percent to esp u k income and percent to eto non-u k income the izod agreements did not explain the reason for this bonus allocation the izod agreements also contained a morals clause and an illegal activities clause acushnet endorsement agreement acushnet manufactures various sports merchandise including titleist brand golf balls and golf gloves petitioner has used acushnet products for most of his golfing career petitioner directly entered into a 2-year endorsement agree- ment with acushnet acushnet agreement following his win at the u s open petitioner licensed to acushnet the right to use his name and likeness in connection with its advertisement promotion and sale of titleist golf balls and golf gloves petitioner also agreed to play with titleist golf balls and golf gloves in all golf tournaments exhibitions clinics and other events worldwide petitioner agreed to participate in four days of public relations activities as well as television commercials for advertising and promoting acushnet products the acushnet agreement also required petitioner to develop and test acushnet golf products acushnet agreed to pay petitioner a dollar_figure endorsement fee for and a dollar_figure endorsement fee for plus tournament bonuses and rankings bonuses the endorsement fee would be prorated if petitioner failed to compete in pga or european tour tournaments per year petitioner verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner thereafter authorized esp and eto to invoice and collect all monies due under the acushnet agreement for all u k and non-u k activities petitioner directed that percent of the endorsement fees and bonuses from acushnet be allocated to esp u k income and percent be allocated to eto non- u k income rolex endorsement agreement rolex is a swiss manufacturer of luxury timepieces peti- tioner directly entered into a 3-year endorsement agreement with rolex in rolex agreement petitioner licensed to rolex the right to use his name and likeness in any medium in connection with the advertisement promotion and sale of rolex timepieces worldwide the rolex agreement did not require petitioner to take part in any golfing activities it did require however petitioner to use all reasonable efforts to wear a rolex timepiece when featured in any medium or when appearing in public engagements worldwide he also agreed to be reasonably available for interviews photographs or films relating to rolex’s products rolex agreed to pay a dollar_figure annual endorsement fee to petitioner petitioner thereafter authorized esp and eto to invoice and collect all monies due under the rolex agree- ment petitioner asked that percent of the endorsement fees from rolex be allocated to esp u k income and per- cent be allocated to eto non-u k income upper deck endorsement agreement upper deck is an international sports and entertainment products company that produces golf trading cards peti- tioner entered into a 14-month letter agreement with upper deck in upper deck agreement petitioner licensed to upper deck the right to use his name and likeness world- wide in connection with the production marketing adver- tising promotion and sale of upper deck’s golf trading cards petitioner agreed to sign big_number trading cards per year as well as provide five shirts five pairs of gloves two hats and one golf bag each of which he used during practice or in a golf tournament upper deck agreed to pay petitioner a dollar_figure endorse- ment fee half of the endorsement fee was paid within verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports days of executing the agreement and the remaining per- cent was paid days after petitioner performed all required services under the agreement he authorized esp and eto to invoice and collect all monies due under the upper deck agreement the upper deck agreement contained a morals clause and an illegal activities clause electronic arts endorsement agreement electronic arts develops markets and distributes video games including tiger woods pga tour a series of golf video games eto and esp each entered into a 3-year endorsement agreement with electronic arts in collectively the electronic arts agreements eto non-u k income and esp u k income licensed to electronic arts the right to use petitioner’s name and likeness in its software products including tiger woods pga tour the video game the territory of eto’s license to electronic arts eto-electronic arts agreement was worldwide except for the united kingdom the territory of esp’s license to electronic arts esp-electronic arts agreement was the united kingdom the eto electronic arts agreement required petitioner to provide two 4-hour product development sessions and to pro- vide nine photographs to enable electronic arts to recreate petitioner’s likeness the esp-electronic arts agreement did not contain any service requirement electronic arts agreed to pay eto dollar_figure upon signing the eto-electronic arts agreement and dollar_figure on or before date electronic arts agreed to pay esp u k income dollar_figure upon signing the esp-electronic arts agree- ment and dollar_figure on or before date u s income taxes and returns mai wealth advisors mai prepared and filed for petitioner nonresident_alien federal_income_tax returns for the years at issue mai is owned by principals of img mai manages the financial affairs of athletes and other high-net-worth individ- uals mai treated petitioner as having received the endorse- ment income directly from the sponsors rather than from eto or esp petitioner reported all prize money from golf tournaments and appearance fees in the united_states as effectively con- verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner nected income taxable in the united_states petitioner characterized his endorsement fees and bonuses from the on- course endorsements a sec_50 percent royalty income and percent personal services income petitioner reported his on- course endorsement fees and tournament bonuses a sec_3_4 per- cent u s -source royalty income he sourced the personal services income from the on-course endorsement fees and tournament bonuses to the united_states based on the number of days he played inside the united_states over the total days he played golf for the year petitioner sourced the personal services income portion of his ranking bonuses from the on-course endorsement agreements based on a ratio of his u s prize winnings to his worldwide prize winnings petitioner characterized his endorsement fees from the off- course endorsement agreements as percent royalty income petitioner reported percent of endorsement fees from rolex and electronic arts as u s -source royalty income and percent of the payments from upper deck as u s - source royalty income respondent audited petitioner’s returns and mailed him the deficiency_notice respondent allocated the endorsement fees generated from the on-course endorsement agreements based on the number of u s tournaments petitioner played in comparison to the number of worldwide tournaments he played respondent allocated all tournament bonuses from tournaments played in the united_states to the united_states respondent allocated the ranking bonuses based on the ratio of u s prize money to worldwide prize winnings respondent agreed that petitioner’s income from the off- course endorsement agreements was income respondent determined however that percent of the roy- alty income should be u s -source income rather than the less than percent u s -source income petitioner reported respondent determined based on these adjustments that petitioner underreported taxable_income for the years at issue royalty petitioner timely filed a petition challenging respondent’s determinations the parties have been able to resolve some petitioner contends he calculated his royalty income percentages using a 12-market model which allocated percent of the endorsement fees to the united kingdom and percent of the endorsement fees evenly among other world markets he has provided few details of the other world markets or how this calculation works verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports issues but they still dispute the deficiency amounts as they relate to the on-course and off-course endorsement agree- ments the parties stipulated that any income from the on- course endorsement agreements characterized as personal services income should be sourced percent to the united_states for and percent to the united_states for the parties also stipulated that all tour- nament bonus income is u s -source and all ranking bonus income is u s -source based on the ratio of u s prize winnings to worldwide prize winnings opinion we are asked to decide how petitioner a u k resident should characterize and source the income he received under the worldwide endorsement agreements for u s tax pur- poses petitioner contends that the sponsors paid the endorsement income primarily for the right to use his name and likeness not for any services he may have provided he argues that the endorsement income should therefore be taxed as u s -source royalty income respondent counters that the sponsors paid him the endorsement income pri- marily for personal services and therefore such income should be taxed as u s -source personal services income the parties also dispute whether petitioner is eligible for any benefits under the u s -u k tax_treaties we begin by exam- ining the burden_of_proof i burden_of_proof in general the commissioner’s determinations in the defi- ciency notice are presumed correct and the taxpayer has the burden of proving that the commissioner’s determinations are in error see rule a 290_us_111 the burden_of_proof may shift to the commissioner in certain situations sec_7491 and b petitioner does not argue nor do we find that the burden_of_proof has shifted to respondent all section references are to the internal_revenue_code code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner ii taxation of nonresident_aliens under the code we now consider how petitioner’s endorsement income should be taxed in the united_states the united_states gen- erally taxes nonresident_aliens only if they engage in a u s trade_or_business or receive u s -source fixed and deter- minable annual or periodic_income see sec_864 engaging in a u s trade_or_business includes any business activity in the united_states that involves one’s own physical presence see sec_1_864-2 income_tax regs the parties agree that petitioner’s golf play in the united_states amounts to his engaging in a u s trade_or_business we must therefore determine the character and source of the income and whether such income was effectively connected with his golf play in the united_states we will consider each issue in turn we begin by considering the character of the income a character of income-personal services income or royalties we first decide whether the endorsement income con- stitutes personal services income or royalty income the par- ties agree that the endorsement fees under the off-course endorsement agreements constitute royalty income we will therefore examine endorsement income only from the on- course endorsement agreements which the taylormade izod and acushnet agreements include petitioner asserts that the sponsors paid him for the right to co-market and co-brand their products with petitioner’s name and likeness 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 see 415_f2d_1205 8th cir 202_f2d_866 2d cir cf 83_tc_584 intellectual_property creator receives only per- sonal services income if the creator lacks an ownership_interest in the underlying property 80_tc_768 316_fsupp_1277 d minn petitioner submitted an expert report from jim baugh mr baugh former president of wil- son sporting goods that taylormade izod and acushnet paid for his name and like- to support his contention verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports ness rather than for the performance of services mr baugh has spent more than years in sports marketing and has extensive experience in professional athlete endorsement agreements respondent argues that the sponsors primarily paid peti- tioner to perform personal services respondent argues that the personal services petitioner was required to perform included playing golf and carrying or wearing the sponsors’ products respondent relies on this personal services argu- ment by focusing on the proration of the endorsement fees if petitioner failed to play in a specific number of golf tour- naments respondent claims that any income received for_the_use_of petitioner’s name and likeness should be considered de_minimis the characterization of petitioner’s on-course endorsement fees and bonuses depends on whether the sponsors primarily paid for petitioner’s services for_the_use_of petitioner’s name and likeness or for both see or state univ alumni association v commissioner 193_f3d_1098 9th cir affg tcmemo_1996_34 boulez v commissioner supra kramer v commissioner supra we must divine the intent of the sponsors and of petitioner from the entire record including the terms of the specific endorsement agreement see ark state police association inc v commissioner 282_f3d_556 8th cir the on-course endorsement agreements granted sponsors taylormade izod and acushnet the right to use petitioner’s name and likeness for advertising and promotional materials worldwide petitioner also agreed to wear or use the spon- sors’ products make promotional appearances and partici- pate in photo and filming days the sponsors paid petitioner a base endorsement fee though the fee would be prorated if he did not play in a specified number of tournaments the sponsors also paid petitioner tournament and ranking bonuses based on his on-course performance the endorse- ment agreements fail to allocate the endorsement income between services petitioner was to provide and the amount_paid for the right to use petitioner’s name and likeness as we view the record as a whole we find that the sponsors paid for both the services provided and the right to use peti- tioner’s name and likeness verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner the record shows that petitioner’s name and his associated international reputation had a value beyond his golf skills and abilities see kramer v commissioner supra petitioner spent many years developing his image he started in south africa and then he flourished in the european tour he was one of the top professional golfers and was recognizable worldwide charles prestagacio mr prestagacio senior vice presi- dent of global sports marketing for taylormade testified that taylormade paid petitioner to appear at tournaments as well as to use his name and likeness in connection with its products he stated that taylormade viewed petitioner not only as a golfer but as a brand ambassador taylormade val- ued its endorsement agreement with petitioner because it appreciated petitioner’s image taylormade wanted to be associated with his cool and professional persona mr prestagacio stated that taylormade marketed petitioner’s image globally year round taylormade as well as the other on-course endorsement sponsors co-branded their products with petitioner in magazine and newspaper advertisements promotional materials and television commercials distributed all over the world taylormade was paying for petitioner’s image he was not paid per advertisement or news clipping moreover he played in golf tournaments all over the world to ensure he complied with his tour card requirements not to earn endorsement fees per se acushnet and izod even included a morals clause and an illegal activities clause in their respective endorsement agreements to terminate the agreements if petitioner com- promised his image mr baugh cited the rise and fall of tiger woods mr woods as an endorser to illustrate the importance sponsors place on an athlete’s image mr woods built the most powerful valuable and carefully orchestrated brand and image in sports he lost most of his sponsorships however when his extra-marital affairs made front page news sponsors determined that mr woods’ image was no longer compatible with their products mr baugh’s report also stated that an athlete’s image is often more important than an athlete’s performance on the course mr baugh highlighted the contrast between taylormade’s on-course endorsements with petitioner and those with sergio garcia mr garcia petitioner ranked verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports either near or higher than mr garcia on the pga tour and world golf rankings during the years at issue petitioner had won a major championship as well as several high-pro- file 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 petitioner and mr garcia entered into substantially_similar endorsement agreements with taylormade in addi- tion mr garcia was paid substantially more than petitioner despite his lesser record taylormade valued mr garcia’s flash looks and maverick personality more than petitioner’s cool iceman demeanor we find that taylormade izod and acushnet valued petitioner’s image and they paid substan- tial money for the right to use his name and likeness the record also shows that the sponsors valued petitioner’s play at tournaments petitioner agreed to make promotional appearances at tournaments and to wear or use the sponsors’ products moreover the sponsors conditioned the full endorsement fee on petitioner’s playing in a specified number of tournaments otherwise the sponsors would prorate his endorsement fees the sponsors could use petitioner’s image in all of their advertising campaigns worldwide but the sponsors would pay petitioner only if he played golf his tournament bonuses were based solely on how he performed in specific tournaments if he performed well throughout the year he could receive a ranking bonus we find that the performance of services requirement was not de_minimis or ancillary to the use of his name and likeness accordingly we find that the income received from the on-course endorse- ment agreements was part royalty income and part personal services income we find it appropriate to allocate the endorsement fees from the on-course endorsements between personal services income and royalty income while we recognize that precision in making such an allocation is unattainable we must do the best we can with the evidence presented kramer v commis- sioner supra see 448_f2d_867 9th cir 304_f2d_125 2d cir revg 35_tc_617 302_f2d_481 2d cir revg tcmemo_1961_105 we must examine all the surrounding facts and circumstances kramer v commissioner supra the sponsors verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner paid for the right to use petitioner’s name and likeness and to be associated with his image petitioner’s endorsement income depended however on his playing in tournaments the record shows that the performance of services and the use of name and likeness were equally important we find that percent of the endorsement fees petitioner received represented royalty income and percent represented per- sonal services income b sourcing and effectively_connected_income we must next determine what portion of the endorsement income should be sourced to the united_states we accept the parties’ stipulations for sourcing the personal services income tournament bonuses and ranking bonuses to the united_states the parties disagree as to what portion of the royalty income from the on-course and off-course endorse- ment fees should be u s -source income we first consider what portion of the royalty income is u s -source income we then consider whether any u s -source royalty income was effectively connected to a u s trade_or_business sourcing petitioner’s royalties royalty income paid for the right to use intangible prop- erty generally is sourced where the property is used or is granted the privilege of being used sec_861 sec_862 for example royalty income received for_the_use_of trade- marks in making foreign sales is sourced outside the united_states revrul_68_443 1968_2_cb_304 thus we must consider where petitioner’s name and likeness were used or would be used to determine the source of petitioner’s royalty income taxpayers must make an appropriate sourcing allocation if the royalty income relates to the right to use property both within and outside the united_states the contracting parties to the transaction have the burden of making a reasonable allocation of the royalty income between the u s and foreign sources here petitioner granted his sponsors the right to use his name and likeness worldwide the contracting par- ties agreed to source percent to the united kingdom and percent to the rest of the world the contracting parties did not specify however how the income should be sourced verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports to the united_states we therefore cannot accept their sourcing allocation for purposes of determining u s -source royalty income courts have generally allocated all the royalty income to the united_states if the contracting parties failed to make a reasonable allocation unless the taxpayer can show there is a sufficient basis for allocating the income between u s and foreign sources see 189_f2d_774 2d cir 156_f2d_924 2d cir affg a memorandum opinion of this court 153_f2d_61 2d cir affg 5_tc_183 a sufficient basis exists when a taxpayer establishes that he or she has property rights out- side the united_states and furnishes evidence on the value of those rights see 178_f2d_987 4th cir affg in part and revg in part 8_tc_637 petitioner has established that he owns the rights to his name and likeness outside the united_states and that those rights have value we must therefore determine the value of those rights by examining where the sponsors actually used petitioner’s name and likeness petitioner’s name and like- ness were used in magazine and newspaper advertisements commercials websites and other promotional materials the parties have presented little statistical evidence on the use of petitioner’s name and likeness this does not absolve us however from valuing rights merely because there is dif- ficulty in fixing their value id we therefore consider the evi- dence to make the reasonable sourcing allocation a upper deck and electronic arts endorsement fees we first consider sourcing petitioner’s royalty income from upper deck and electronic arts the record reflects that upper deck sold percent of its golf cards in the united_states and eight percent outside the united_states the record reflects that electronic arts sold percent of the video games in the united_states and percent of the video games outside the united_states the parties do not dispute these sales figures we recognize that product sales do not necessarily reflect the relative worldwide value of the intangible rights see verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner molnar v commissioner supra rohmer v commissioner supra here however the golf card and video game sales appear to indicate where upper deck and electronic arts used petitioner’s name and likeness petitioner added value to both upper deck’s and electronic arts’ international sales because he was a citizen of south africa resided in england and played worldwide the record shows however that the golf cards and the video game were primarily marketed in the united_states petitioner’s name and likeness also were valued greatly in the united_states following hi sec_2001 u s open win moreover petitioner’s name and likeness value was inex- tricably tied to the sales of the video game and golf cards petitioner’s endorsement agreement granted electronic arts the right to use petitioner’s name and likeness only with the video game and not in advertising or other promotional materials the parties agree that upper deck’s golf card sales rather than its use of petitioner’s name and likeness in advertising and promotional material should be a deter- mining factor in sourcing the upper deck endorsement fees we agree we find that the sale of the trading cards and video game provide a sufficient basis for determining where upper deck and electronic arts used petitioner’s name and likeness rights we therefore find that petitioner’s royalty income from upper deck is percent u s -source income and elec- tronic arts is percent u s -source income b on-course and rolex endorsement fees we next consider whether the parties presented sufficient evidence to value petitioner’s royalty income under the on- course and rolex endorsement agreements petitioner mr kinnings and mr prestagacio all testified that petitioner was marketed aggressively in the united_states following hi sec_2001 u s open victory petitioner testified that the united kingdom united_states and south africa were his three largest markets for golf endorsements we find perplexing however that he allocated percent of his royalty income to the united kingdom and only percent of his royalty income to the united_states on the evidence presented we verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports cannot accept petitioner’s contention that less than seven percent of his royalty income is u s -source income we look to the rest of the facts petitioner has shown that the sponsors paid for the right to use petitioner’s name and likeness outside the united_states petitioner has dem- onstrated that he had a global image and that he was mar- keted all over the world his market includes the united kingdom the united_states south africa australia and the far east thus it would be unreasonable to source all the royalties to the united_states petitioner testified that the united_states is the largest golf market in the world and it is one of his largest markets for golf endorsements taking into account all the evidence it is our best judgment and we so find that percent of the royalty income petitioner received from the on-course and rolex endorsement agree- ments is u s -source income effectively_connected_income we next consider whether such u s -source income is effec- tively connected with a u s trade_or_business the parties agree that petitioner engaged in the u s trade_or_business of playing golf a nonresident_alien engaged in a u s trade_or_business is taxed on income that is effectively connected with the conduct of that trade_or_business sec_882 we apply different rules depending on whether the income is u s -source income or not u s -source income in the case of u s -source income that is effectively connected with a u s trade_or_business a nonresident_alien will be subject_to the graduated_tax rates applicable to u s residents in the case of u s -source income that is not effectively connected with a u s trade_or_business and consists of rents dividends royalties or other fixed or determinable annual or periodic_income the nonresident_alien will be subject_to a flat 30-per- cent withholding_tax the parties do not argue nor do we find that petitioner maintained an office or fixed place of business in the united_states we therefore find that peti- tioner is not subject_to u s tax on his income that is not from u s sources the parties also do not dispute that petitioner’s personal services were effectively connected with petitioner’s golf play and that the u s -source income earned playing golf is taxed verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner at regular graduated rates we must still determine whether petitioner’s u s -source royalty income is effectively con- nected with his u s trade_or_business u s -source royalty income will be effectively connected with a u s trade_or_business if the activities of the trade_or_business are a mate- rial factor in realizing the royalty income sec_1 c i income_tax regs we will consider separately the u s -source royalty income petitioner received under the on- course endorsement agreements and that under the off- course endorsement agreements we first consider whether petitioner’s u s -source royalty income from the on-course endorsement agreements was effectively connected with his golf play in the united_states as we previously discussed petitioner’s income from the use of his name and likeness depended on whether he played in a specified number of golf tournaments in other words peti- tioner’s participation in a golf tournament was material to receiving income for_the_use_of his name and likeness we therefore find that such income is effectively connected with a u s trade_or_business and petitioner will be subject_to the graduated_tax rates applicable to u s residents we next consider whether petitioner’s u s -source royalty income from the off-course endorsement agreements was effectively connected with a u s trade_or_business the income petitioner received from the off-course endorsement agreements did not depend on whether he played in any golf tournaments he would be paid regardless of whether he played in or won any tournament moreover the off-course endorsement agreements did not require petitioner to be physically present in the united_states we therefore find that the income petitioner received from off-course endorse- ment agreements was not effectively connected with a u s trade_or_business see sec_1_864-4 example income_tax regs accordingly a flat 30-percent tax is imposed on petitioner’s gross u s -source royalty income from the off-course endorsement agreements see sec_881 sec_871 there is also an asset test in sec_864 not relevant here sec_1_864-4 i income_tax regs verdate 0ct date jkt po frm fmt sfmt v files goosen sheila united_states tax_court reports iii effect of u s -u k tax_treaties we finally consider whether petitioner benefits from the u s -u k tax_treaties the fundamental purpose of a tax_treaty is to avoid the uncoordinated taxation of an individ- ual’s income by two different countries tax_treaties seek to avoid double_taxation as well as prevent fiscal evasion the code applies with due regard to any applicable treaty obliga- tion of the united_states sec_894 we therefore con- sider whether petitioner would receive any benefits under the u s -u k tax_treaties that he did not receive under the code the u s -u k tax_treaties provide that the united kingdom will tax a u k resident non-domiciliary on non- u k source income only to the extent the income is remitted to or received in the united kingdom see u s -u k tax_treaty art iv u s -u k tax_treaty art i in such a case the united_states may not subject the u k resident to tax on specified kinds of income to avoid double_taxation petitioner may therefore benefit from the u s -u k tax trea- ties regarding payments made to esp u k income and eto non-u k income that were remitted to or received in the united kingdom the parties agree that the endorsement income eto non-u k income received was not remitted to or received in the united kingdom petitioner argues how- ever that he should benefit from the u s -u k tax_treaties to the extent esp u k income remitted his salary and bonuses to his u k bank account we now consider whether petitioner’s endorsement income was remitted to or received in the united kingdom peti- tioner’s sponsors wired their payments to esp’s u k income bank account in liechtenstein in addition to his endorse- ment income esp u k income received on petitioner’s behalf significant amounts of prize money bonuses non-u s royalties and appearance fees esp u k income paid peti- tioner a salary and a bonus that were based on the total amount deposited into the esp u k income bank account in liechtenstein petitioner submitted statements from his u k bank account showing transfers from esp u k income into his u k bank account of big_number in and big_number in petitioner has not established however whether these salary and bonus payments constitute endorsement income verdate 0ct date jkt po frm fmt sfmt v files goosen sheila goosen v commissioner or another type of income we find no evidence in the record that any or all of the income received into the account was endorsement income paid_by taylormade izod acushnet upper deck electronic arts or rolex petitioner has failed to meet his burden of proving that endorsement income esp u k income received on his behalf has been remitted to or received in the united kingdom as such petitioner is not eligible for benefits under the u s - u k tax_treaties iv conclusion in sum we find that petitioner received percent royal- ties and percent personal services income under the on- course endorsements we also find that percent of the roy- alty income petitioner received under the on-course endorse- ment agreements and the rolex agreement is u s -source income percent of the royalty income petitioner received under the upper deck endorsement agreement is u s -source income and percent of the royalty income received under the electronic arts agreement is u s -source income peti- tioner has not shown that he is eligible for any treaty bene- fits we have considered all arguments made in reaching our decision and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule f verdate 0ct date jkt po frm fmt sfmt v files goosen sheila


internal_revenue_service number release date index number --------------------------- ----------------------------------------- ------------------------------- ------------------------------------- - department of the treasury washington dc person to contact -------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 - plr-101019-04 date may trust ------------------------------------------------------------------------------------------------------- ------------------------ -------------------- ---------------------- ---------------------- d1 d2 d3 this letter responds to your letter dated date and subsequent the information submitted states that trust was created d1 and made an initial dear ------------- correspondence submitted on behalf of trust requesting rulings under sec_1361 of the internal_revenue_code that trust be allowed to revoke its electing_small_business_trust esbt election and elect to be treated as a qualified_subchapter_s_trust qsst election to be treated as a qsst the trustee of trust elected to treat trust as an esbt effective d2 the trustee and beneficiary of trust request to revoke trust’s esbt election and make an election to be treated as a qsst effective d3 which is within months of d2 election may be revoked only with the consent of the commissioner the application_for consent to revoke the election must be submitted to the internal_revenue_service in the form of a private_letter_ruling request under the appropriate revenue_procedure convert from an esbt to a qsst to receive automatic consent to revoke the esbt election sec_1_1361-1 requires that the trust has not converted from a sec_1_1361-1 of the income_tax regulations provides that an esbt sec_1_1361-1 provides the requirements for a_trust that seeks to based on the facts and representations submitted we conclude that trust may plr-101019-04 qsst to an esbt within the 36-month period preceding the effective date of the new qsst election revoke its esbt election and elect to be treated as a qsst effective d3 the beneficiary of trust should file a qsst election effective d3 which meets the requirements of sec_1361 and the regulations thereunder for each s_corporation the stock of which is held by trust the elections should be filed with the appropriate internal_revenue_service center within days of the date of this letter a copy of this letter should be attached to each election except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether trust is otherwise eligible to be an esbt or qsst this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the trustee of trust sincerely j thomas hines chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi b1-plr-100858-02 date feb legend x d1 state dear this responds to the private_letter_ruling request dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code facts x was incorporated on d1 under the laws of the state x intended to be treated as an s_corporation for federal tax purposes effective on d1 but the s election was not timely filed law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election plr-100858-02 is made if the election is made after the first two and one-half months of a corporation’s taxable_year then the corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is made sec_1362 provides that if no election is made pursuant to sec_1362 or if made the election is made after the date prescribed for making such an election and the secretary determines there was reasonable_cause for the failure to timely make the election then the secretary may treat such an election as timely made for such taxable_year and effective as of the first day of that tax_year x did not file a timely election to be treated as an s_corporation under sec_1362 effective d1 x has however established reasonable_cause for not making a timely election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and representations made and provided that x otherwise qualifies as a subchapter_s_corporation we conclude that x will be recognized as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the private_letter_ruling request a copy of this letter is being faxed to your authorized representative sincerely dianna k miosi chief branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


internal_revenue_service national_office technical_advice_memorandum date number release date third party contact none index uil nos case mis no tam-167312-01 psi b8 director area small_business self-employed operating division taxpayer name taxpayer address taxpayer identification no quarters involved date of conference legend taxpayer issue whether taxpayer is exempt from the tax imposed by sec_4251 of the internal_revenue_code with respect to the communications_services described below by reason of sec_4253 conclusion taxpayer is not exempt from the tax imposed by sec_4251 with respect to the communications_services described below by reason of sec_4253 facts taxpayer is a common carrier within the meaning of sec_4253 in the conduct of its business taxpayer subscribes to four communications_services domestic and canadian inbound toll-free service inbound toll-free switched service and outbound toll-free virtual network service collectively the services the charge for each service is determined on a per minute basis law and analysis sec_4251 imposes a tax on amounts paid for certain communications_services sec_4251 provides that the term communications_services includes toll_telephone_service sec_4252 defines toll_telephone_service as a telephonic quality communication for which a there is a toll_charge which varies in amount with the distance and elapsed transmission time of each individual communication and b the charge is paid in the united_states and a service which entities the subscriber upon payment of a periodic charge determined as a flat amount or upon the basis of total elapsed transmission time to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with the service is located sec_4253 provides that no tax shall be imposed under sec_4251 on the amount_paid for any toll_telephone_service described in sec_4252 to the extent that the amount so paid is for use by a common carrier telephone or telegraph company or radio broadcasting station or network in the conduct of its business as such in revrul_79_404 1979_2_cb_382 the irs considered the applicability of sec_4252 to telephone messages that were relayed by an offshore radio telephone service by satellite between sites outside the united_states and landline stations in the united_states the charge for the service varied only with elapsed transmission time the charge was stated to be 3x dollars per minute for the first three minutes thereof and 1x dollar for each additional minute or fraction thereof the ruling states that prior to the amendment of sec_4252 by sec_302 of the excise_tax reduction act of 1965_2_cb_568 toll_telephone_service was defined in part as a telephone or radio telephone message or conversation for which there was a toll_charge and the charge is paid within the united_states the legislative_history of sec_4252 indicates that in amending sec_4252 the congress intended to exempt certain private communication services from the tax and repeal the tax on telegraph service and wire and equipment service but there was no indication that the congress otherwise intended to make changes in the types of service subject_to tax see h_rep_no pincite 1965_2_cb_643 s rep no pincite 1965_2_cb_676 accordingly the ruling holds that the described service is toll_telephone_service within the meaning of sec_4252 notwithstanding that the charge for the service did not vary with distance as provided by sec_4253 amounts paid for_the_use_of any toll_telephone_service described in sec_4252 by a common carrier in the conduct of its business as such are exempt from the communications tax however a common carrier is not exempt with respect to toll_telephone_service that is described in sec_4252 the definition contained in sec_4252 is intended to describe service commonly known as wide area telephone service or wats which is described in the legislative_history to sec_4252 as a service whereby for a flat charge the subscriber is entitled to make an unlimited number of calls within a defined area sometimes limited as to the maximum amount of hours see h_rep_no supra s rep no supra thus wats resembles on a wide area basis a service similar to traditional local_telephone_service wherein the subscriber pays a fixed monthly rate for an unlimited number of calls and the charge does not vary according to the length destination or number of calls taxpayer argues that it purchases services described in sec_4252 taxpayer emphasizes that the charge for each service is based upon total elapsed transmission time as used in the parenthetical in sec_4252 however the charges for the services are determined on the basis of the duration of each call unlike local service taxpayer does not pay a fixed amount in advance for an unlimited number of calls thus the services are similar to the service in revrul_79_404 that was held to be described in sec_4252 not sec_4252 that is the services in question do not entitle taxpayer to an unlimited number of calls to a specified service area for which a charge is made based on a flat fee or elapsed transmission time but rather provide taxpayer with telephone service for which taxpayer is charged an amount that varies based upon the duration of each call because the services are not services described in sec_4252 the services are not exempted from tax by virtue of sec_4253 therefore taxpayer is not exempt from tax on amounts paid for the above described communications_services caveats a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it may not be used or cited as precedent in accordance with sec_6110 names addresses and other identifying numbers have been deleted