                                                 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 allo-
                                               cated 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 roy-
                                               alty 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 pay-
                                               ments. R now disputes the 85%–15% allocation between roy-
                                               alty and personal service payments, arguing for a larger por-
                                               tion 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 Avoid-
                                               ance 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,

                                                                                                                                   141




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                                      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 pay-
                                               ments 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 allo-
                                               cated 65% to royalties and 35% to personal services. Held, fur-
                                               ther, 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 tax-
                                               ation 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 peti-
                                      tioner’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 endorse-
                                      ment 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 per-
                                      sonal 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 com-
                                      pensation 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 compensa-
                                      tion is taxable to petitioner in the United States.




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                                      (141)                          GARCIA v. COMMISSIONER                                       143


                                                                          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 profes-
                                      sional 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 person-
                                      ality, 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. How-
                                      ever, 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 peti-
                                      tioner 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
                                           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, peti-
                                      tioner has been unable to pull off a win in one of the Majors.




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                                      144                 140 UNITED STATES TAX COURT REPORTS                                    (141)


                                      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 endorse-
                                      ment 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
                                           2 The   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] ambas-
                                        sador. The relationship between a Global Icon and the company is multi-
                                        faceted. Continued investment by the company to enhance the athlete’s
                                        performance and develop his persona will maximize both parties’ long-
                                        term investments in the relationship.
                                        3 While 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 con-
                                      tracts. The most common type of endorsement contract (representing ap-
                                      proximately 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 con-
                                      tracts for a golfer to use specific products and to grant a company the right




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                                      (141)                          GARCIA v. COMMISSIONER                                       145


                                      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 endorse-
                                      ment 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 peti-
                                      tioner 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 peti-
                                      tioner’s image rights). Petition had certain other obligations,
                                      including: encouraging cross-promotion of TaylorMade prod-
                                      ucts 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 ‘‘vio-
                                      lating 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
                                      to use the golfer’s image rights to promote the products used.
                                        5 Petitioner’s caddy was also required to wear TaylorMade clothing,

                                      shoes, and headgear during professional events.
                                        6 Petitioner played in more than 20 events in both 2003 and 2004.
                                        7 During    such days petitioner would shoot advertisements for
                                      TaylorMade and entertain customers and clients of TaylorMade (among
                                      other promotional activities).




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                                      146                 140 UNITED STATES TAX COURT REPORTS                                    (141)


                                      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 termi-
                                      nation of the endorsement agreement. However, there would
                                      be no penalty if TaylorMade failed to use the service or per-
                                      sonal 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 remu-
                                      neration 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 con-
                                      tract period. If TaylorMade opted to renegotiate and the par-
                                      ties could not come to an endorsement agreement after 30

                                         8 Depending on the year and which TaylorMade products he did use, pe-

                                      titioner 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.




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                                      (141)                          GARCIA v. COMMISSIONER                                       147


                                      days, TaylorMade had the option to terminate the endorse-
                                      ment 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 (dis-
                                      cussed further infra). Finally, the first amended contract
                                      specified that petitioner would be available for two product-
                                      testing days each year of the contract. On such days peti-
                                      tioner would use TaylorMade products and critique them.




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                                      148                 140 UNITED STATES TAX COURT REPORTS                                    (141)


                                         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 remu-
                                      neration to approximately $5.5 million ($4.75 million if peti-
                                      tioner failed to use a Maxfli ball in all golfing activities
                                      during that year); (3) added an alternative base remunera-
                                      tion 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 per-
                                      sonal 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 partici-
                                      pated 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 Switzer-
                                      land and thereafter reached an endorsement agreement with
                                      Swiss authorities regarding the manner in which it would be
                                           9 Petitioner
                                                      continued to use a competitor’s ball into 2004 but then re-
                                      turned 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.
                                        11 The structure of the related companies is not pertinent to the ultimate

                                      decisions in this Opinion. This information is provided for background pur-
                                      poses.




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                                      (141)                          GARCIA v. COMMISSIONER                                       149


                                      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 endorse-
                                      ment agreement (U.S. licensed image rights). In return peti-
                                      tioner 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 endorse-
                                      ment 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
                                        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.




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                                      150                 140 UNITED STATES TAX COURT REPORTS                                    (141)


                                      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 defi-
                                      ciency to petitioner for 2003 and 2004 determining defi-
                                      ciencies 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 peti-
                                      tioner’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
                                        13 All Rule references are to the Tax Court Rules of Practice and Proce-

                                      dure.




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                                      (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 out-
                                      side 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 serv-
                                      ices. Respondent has since abandoned that position and
                                      instead argues that ‘‘[t]he vast majority of the remuneration
                                      * * * is attributable to the personal services Petitioner ren-
                                      dered 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 agree-
                                      ment 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 reputa-
                                      tion 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 out-
                                      side 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 endorse-
                                      ment agreement (discussed further infra). As a result, we




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                                      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 peti-
                                      tioner’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 peti-
                                      tioner, determined the value of petitioner’s service days/per-
                                      sonal appearances using both the mean ($50,561) and
                                      median ($33,333) values of the other contracts, and deter-
                                      mined 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 dif-
                                      ficult valuation problem, we do not agree with Mr. Roesler’s
                                      or Mr. Fort’s ultimate conclusions regarding allocation to per-
                                      sonal 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.
                                        14 Mr. Fort assigned no value to petitioner’s product testing or other pro-

                                      visions of the endorsement agreement.




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                                      (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 like-
                                           ness, 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 compensa-
                                      tion 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 cru-
                                      cial elements of petitioner’s endorsement agreement. For
                                      example, TaylorMade’s chief marketing director, Robert Mag-
                                      giore, 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 ele-
                                      ments were critical.
                                         We have previously decided cases involving sports stars
                                      where allocation of payments for personal services and royal-
                                      ties was at issue. In Kramer v. Commissioner, 80 T.C. 768,




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                                      154                 140 UNITED STATES TAX COURT REPORTS                                    (141)


                                      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 some-
                                      what 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 situa-
                                      tion much more similar to petitioner’s which makes for a
                                      better comparison.
                                         Goosen v. Commissioner, 136 T.C. 547, involved a promi-
                                      nent 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 peti-
                                      tioner, 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 avail-
                                      able 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
                                        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 require-

                                      ments of his TaylorMade endorsement agreement even though he was also
                                      required to wear certain Izod clothing.




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                                      (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 agree-
                                      ment (as well as his Acushnet and Izod endorsement agree-
                                      ments). 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 endorse-
                                      ment 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 endorse-
                                      ment 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




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                                      156                 140 UNITED STATES TAX COURT REPORTS                                    (141)


                                      convinced that petitioner’s TaylorMade endorsement agree-
                                      ment 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 endorse-
                                      ment 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 evi-
                                      dence show that service and personal appearance days did
                                      not constitute a large portion of the value of petitioner’s per-
                                      sonal 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 per-
                                      sonal appearance days than Mr. Goosen is of nominal impor-
                                      tance.
                                        TaylorMade required Mr. Goosen to play in more profes-
                                      sional 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 profes-
                                      sional 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
                                        17 It was not established how many service days and personal appear-

                                      ances Mr. Goosen actually completed for TaylorMade.




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                                      (141)                          GARCIA v. COMMISSIONER                                       157


                                      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 peti-
                                      tioner’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 addi-
                                      tion, 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 neg-
                                      ligible importance compared to the other personal services
                                      required under the endorsement agreement. We also find cer-
                                      tain other requirements of petitioner (such as the require-
                                      ment that he encourage cross-promotion of TaylorMade with
                                         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.
                                         19 Specifically, 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.




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                                      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), Commis-
                                      sioner 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 Switzer-
                                      land 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 roy-
                                      alty income as well as the personal service income attrib-
                                      utable 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 prop-
                                      erly 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 agree-




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                                      (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 peti-
                                      tioner’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 impermis-
                                      sible 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 gov-
                                      erns the taxability of the image right payments. Instead,




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                                      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 Depart-
                                      ment of the Treasury Technical Explanation of the Conven-
                                      tion 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). Peti-
                                      tioner 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 per-
                                           former 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 arti-
                                           cles 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.]




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                                      (141)                          GARCIA v. COMMISSIONER                                       161


                                         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 connec-
                                      tion 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
                                         20 Similar to the Treasury Technical Explanation example, images of pe-

                                      titioner playing in professional golf events or posing/acting in TaylorMade
                                      shoots were used in TaylorMade advertisements.




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                                      162                 140 UNITED STATES TAX COURT REPORTS                                    (141)


                                      treaty did apply to petitioner, then amounts paid to peti-
                                      tioner 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 serv-
                                      ices 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 con-
                                      cedes 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 peti-
                                      tioner 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 peti-
                                      tioner ‘‘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 pre-
                                      viously conceded that all U.S. source personal service income
                                      was taxable in the United States.
                                         We agree with respondent that petitioner previously con-
                                      ceded 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
                                         21 The 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.’’




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                                      (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 com-
                                      pensation 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




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