NEW YORK, March 18, 2013 /PRNewswire/ — U.S. Tax Court's recent ruling against professional golfer Sergio Garcia — which increased his endorsement income tax liability — is a further wake-up call to all non-U.S. professional athletes that the Internal Revenue Service (IRS) is examining their books with a microscope. Garcia will now owe additional taxes to the IRS as a result of his endorsement deal with TaylorMade Golf, although only a fraction of what the IRS was demanding in the litigation.
"International professional athletes travel the globe and have entered into sponsorship deals that do not necessarily allocate their endorsement income in a way that is consistent with reality or that takes into account the different network of tax treaties around the world," stated Mark D. Allison, a member of Caplin & Drysdale's New York Office. "This is the second instance of such a case and it will very likely happen again." South African professional golfer Retief Goosen experienced a similar situation in 2011. Both cases concern non-U.S. athletes and their endorsement income for personal services and the use of their name and likeness.
Endorsement contracts often involve U.S. tax issues that are unknown to the athlete when the contract is agreed to, but that the IRS will pursue vigorously later on. This can result in an unexpected tax bill that could potentially be avoided with proper tax planning. While professional golfers and tennis players have been targeted by the IRS before, other non-U.S. pro athletes should also be concerned.
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