Northern Ireland native Rory McIlroy dominated the field this weekend to capture the 2012 PGA Championship, held at Kiawah Island, South Carolina.
McIlroy became the first player to win the Championship by at least eight strokes, breaking Jack Nickalus’ previous record of seven set in 1980.
Finishing first, McIlroy collects a cool $1,445,000. Before taxes, of course.
McIlroy may be considered a U.S. resident and thus subject to U.S. income tax on his worldwide income if he meets the substantial presence test. To have substantial presence, he must (i) spend at least 31 days in the U.S. during 2012 and (ii) have a weighted average of 183 days spent in the U.S. over 2012 and the prior two years. But, if he spends fewer than 122 days in the U.S. during 2012, then he is exempt from substantial presence.
If McIlroy is not a U.S. resident for 2012, he still must pay U.S. tax on income that is “sourced” (earned) in the United States, unless there is treaty relief.
Section 1 of Article 17 of the United States-United Kingdom Income Tax Treaty reads:
Notwithstanding the provisions of Articles 14 (Independent Personal Services) and 15 (Dependent Personal Services), income derived by entertainers, such as theatre, motion picture, radio or television artistes, and musicians, and by athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised, except where the amount of the gross receipts derived by an entertainer or athlete, including expenses reimbursed to him or borne on his behalf, from such activities do not exceed 15,000 United States dollars or its equivalent in pounds sterling in the tax year concerned.
No treaty relief for the champion. McIlroy’s $1.44 million prize is subject to U.S. income tax.
At 23 years young, McIlroy has a very promising career ahead of him. It’s not far-fetched to speculate he will receive more attention than any other professional golfer from prospective endorsers over the next five to ten years.
The taxation of endorsement winnings of nonresident golfers in the U.S. has been a heavily litigated issue. Retief Goosen took his case to tax court last year, and the parties stipulated to dismiss the appeal of that case this past February.
Another significant case regarding the endorsement earnings of a professional golfer is still pending, however. Sergio Garcia is the taxpayer. I’ll write about that decision after we learn of it.