Polly Ling is a successful professional golfer. She is a resident of a country that does not have a tax treaty with the United States. Ling plays matches around the world, about one-half of which are in the United States. Ling’s reputation is without blemish; in fact, she is known as being exceedingly honest and upright, and many articles discuss how she is a role model for young golfers due to her tenacious and successful playing style and her favorable character traits. Every year, she reports the most penalty strokes on herself among the participants in women’s’ matches, and this is seen as reinforcing her image as an honest and respectful competitor.
This combination of quality play and laudable reputation has brought many riches to Ling. She comes to you with several Federal income tax questions. She knows that as a non-U.S. resident, any of her winnings from tournament play that occurs in the United States are subject to U.S. income taxation. But what about each of the follow ing items? How does U.S. tax law affect Ling? Apply the sourcing rules in this regard, and determine whether the graduated U.S. Federal income tax rate schedules apply.
• Endorsement income from Your Golf, for wearing clothing during matches with its logo prominently displayed. Ling must play in at least 10 tournaments per year that are televised around the world. She also must participate in photo sessions and in blogs and tweets associated with the tournaments. Payment to Ling is structured as a flat fee, with bonuses paid if she finishes in the top five competitors for each match. This is known as an on-court endorsement.
• Endorsement income from Golf Zone, for letting the company use her likeness in a video game that simulates golf tournaments among known golfers and other players that the (usually middle-aged men and women) gamers identify. In this way, the gamer seems to be playing against Ling on famous golf courses. Two-thirds of all dollar sales of the game licenses are to U.S. customers.
• Endorsement income from Eliteness, for appearing in print and Internet ads that feature Ling wearing the company’s high-end watches. One-fifth of all dollar sales of the watches are to U.S. customers. The latter two items are known as off-court endorsements.