The IRS is not a loan operation
State and local tax breaks are not necessarily the best business lure

Golfers Goosen, Garcia teed off at IRS

Hand_placing_golf_ball_on_tee.s600x600 Retief Goosen and Sergio Garcia are going about their business at Augusta National, hoping to don a Masters' green jacket on Sunday. Both were doing pretty well in today's first round.

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

The difference is important.

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

The rest of the money is royalties, essentially payment for the professional athlete's image and reputation.

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

Guess how the two golfers classify most of their earnings? You got it, as royalties. And they are arguing that because of the distinction, they don't owe the IRS as much as the agency claims they do.

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

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

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

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

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