1968 U.S. Tax Ct. LEXIS 107">*107 Decisions will be entered for the respondent.
Held, that portion of a bonus for the signing of a contract by petitioner (a minor) to play baseball for a professional baseball team which was paid directly to his mother by prearrangement in the contract was taxable to petitioner under sec. 73 or sec. 61, I.R.C. 1954. Held, further, petitioner was not entitled to deduct from his gross income any part of the bonus payments made to his mother during the years here in issue. Cecil Randolph Hundley, Jr., 48 T.C. 339">48 T.C. 339, distinguished.
50 T.C. 466">*466 The Commissioner determined deficiencies in income tax against petitioner Richard A. Allen individually in the amounts of $ 4,854.08 and $ 2,717.45 for the years 1961 and 1962, respectively, and against petitioners Richard A. and Barbara Allen jointly in the amount of $ 1,070.11 for 1963. The cases have been consolidated for trial and present common issues, namely, whether certain bonus payments received by the mother of petitioner Richard A. Allen were properly includable in his income and, if so, whether he is entitled to a deduction from income in the amount of those payments.
FINDINGS OF FACT
Some of the facts have been stipulated and, as stipulated, are incorporated herein by this reference along with accompanying exhibits.
Petitioners Richard A. and Barbara Allen are husband and wife, who at the time of the filing of the petitions and amended petitions herein resided in Philadelphia, Pa. Richard A. Allen filed his individual returns for the calendar years 1960, 1 1961, and 1962, and a joint return with his wife Barbara Allen for 1963, on the cash receipts and disbursements method1968 U.S. Tax Ct. LEXIS 107">*109 of accounting, with the district director of internal revenue, Pittsburgh, Pa. Barbara Allen is a party to this 50 T.C. 466">*467 proceeding solely by virtue of the joint return filed for 1963, and the term "petitioner" will hereinafter refer solely to Richard A. Allen.
Petitioner was born on March 8, 1942. In the spring of 1960 petitioner, then age 18, was living with his mother, Mrs. Era Allen, in Wampum, Pa., and was a senior at a local high school. Mrs. Allen had been separated from her husband since 1957. She had eight children, of whom three, including petitioner, were dependent upon her for support during 1960. She received no funds from her husband, and supported her family by doing housework, sewing, or laundry work.
In the course of his high school years, petitioner acquired a reputation as an outstanding baseball and basketball player. He was anxious to play professional baseball, and1968 U.S. Tax Ct. LEXIS 107">*110 had even expressed a desire to leave high school for that purpose before graduation, but was not permitted to do so by his mother. During petitioner's junior year in high school, word of his athletic talents reached John Ogden (hereinafter "Ogden"), a baseball "scout" for the Philadelphia National League Club, commonly known and hereinafter referred to as the Phillies. Ogden's attention was drawn to petitioner through a newspaper article about petitioner which, while primarily describing him as a great basketball player, also mentioned that he had hit 22 "home runs" playing with a men's semiprofessional baseball team the summer before his junior year in high school, and that the player who had come closest to his total on this team, which otherwise comprised only grown men, had hit only 15 home runs. Ogden's function as a scout for the Phillies was to select baseball talent capable of playing in the major leagues, i.e., with the Phillies, and after reading this article he made up his mind to see petitioner.
Ogden had himself played baseball for around 16 to 18 years, was general manager of one baseball club and owner of another for 7 or 8 years, and at the time of the trial herein1968 U.S. Tax Ct. LEXIS 107">*111 had been a baseball scout for the preceding 28 years -- a total of about 52 years in professional baseball. After interviewing petitioner and watching him play basketball and baseball, Ogden determined that petitioner was the greatest prospect he had ever seen. He conveyed this impression to John Joseph Quinn (hereinafter "Quinn"), vice president and general manager of the Phillies, and told Quinn that petitioner was worth "whatever it takes to get him." Quinn thereupon gave Ogden authority to "go and get" petitioner, i.e., to sign him to a contract to play baseball for the Phillies.
From this point on, Ogden became very friendly with petitioner's family. He hired Coy Allen, petitioner's older brother of about 36 or 37 who had played some semiprofessional baseball in the past, as a 50 T.C. 466">*468 scout for the Phillies. He also signed Harold Allen, another brother of petitioner, to a contract to play baseball in the Phillies organization. He visited the Allen home often, and talked to petitioner about playing baseball. He did not, however, attempt immediately to sign petitioner to a contract because of a rule adhered to by the Phillies and other baseball teams prohibiting the signing1968 U.S. Tax Ct. LEXIS 107">*112 of any boy attending high school to a baseball contract until after his graduation.
Ogden, as well as representatives of a dozen or more other baseball teams that also desired petitioner's services, discussed petitioner's prospects with his mother, Era Allen. She was the head of the family, and she made all the family decisions. Although petitioner discussed baseball with the various scouts, he referred them to his mother in connection with any proposed financial arrangements, and he felt "bound" to play for which ever club his mother might select.
Era Allen conducted all negotiations with Ogden in respect of the financial arrangements that might be made for petitioner if it should be determined that he would play for the Phillies. However, she knew nothing about baseball, particularly the financial aspects of baseball, and she relied almost entirely upon advice from her son Coy Allen. After petitioner had entered into a contract to play for the Phillies organization, as hereinafter more fully set forth, Era Allen paid Coy $ 2,000 in 1960 for his services out of the funds which she received under that contract, and she deducted that amount from her gross income on her 1960 individual1968 U.S. Tax Ct. LEXIS 107">*113 income tax return.
One of the principal items of negotiation with Ogden was the amount of "bonus" to be paid for petitioner's agreement to play for the Phillies organization. Such bonus was in addition to the monthly or periodic compensation to be paid petitioner for services actually rendered as a ballplayer. The purpose of the bonus was to assure the Phillies of the right to the player's services, if he were to play at all, and to prevent him from playing for any other club except with permission of the Phillies. Scouts for other teams had made offers of a bonus of at least $ 20,000 or $ 25,000. During the course of the negotiations Ogden made successive offers of a bonus in the amounts of $ 35,000, $ 50,000, and finally $ 70,000. The $ 70,000 offer was satisfactory to petitioner's mother, but she wanted $ 40,000 of that amount paid to her and $ 30,000 to petitioner. She thought that she was entitled to a portion of the bonus because she was responsible for his coming into baseball by her hard work, perseverance, taking care of petitioner, and seeing that he "did the right thing." Although it had been informally agreed prior to petitioner's graduation that he would go with1968 U.S. Tax Ct. LEXIS 107">*114 the Phillies, the contract was presented to and signed by petitioner some 30 or 40 minutes after he had received his high school diploma on June 2, 1960.
50 T.C. 466">*469 The contract was formally between petitioner and the Williamsport Baseball Club, one of six or seven minor league teams affiliated with the Phillies through a contractual arrangement known as a "working agreement" whereby, in general, the Phillies were entitled, in exchange for a stated consideration, to "select" the contracts of any of the players on the Williamsport Club for their own purposes and under which the Phillies further agreed, among other things, to reimburse the Williamsport Club for any bonus paid to a player for signing a contract with that club. The Williamsport Club was under the substantial control of the Phillies, and the contract between petitioner and the Williamsport Club was signed on behalf of the latter by an official of the Phillies, who was in charge of all the Phillies' minor league clubs, or what was called their "farm system," and who was authorized to sign on behalf of the Williamsport Club. The contract was on the standard form prescribed by the National Association of Professional Baseball1968 U.S. Tax Ct. LEXIS 107">*115 Leagues. Since petitioner was a minor, his mother gave her consent to his execution of the contract by signing her name under a printed paragraph at the end of the form contract entitled "Consent of Parent or Guardian." Such consent was given explicity "to the execution of this contract by the minor player party hereto," and was stated to be effective as to any assignment or renewal of the contract as therein specified. She was not a party to the contract. The Phillies, in accordance with their usual practice, would not have entered into any such contract, through the Williamsport Club or otherwise, without having obtained the consent of a parent or guardian of the minor player.
In addition to providing for a salary of $ 850 per month for petitioner's services as a ballplayer, the contract provided for the $ 70,000 bonus, payable over a 5-year period, of which $ 40,000 was to be paid directly to petitioner's mother and $ 30,000 to petitioner. The contract provided in part as follows:
SALARY CERTIFICATE
The undersigned Authorized Club Official and Player each does hereby certify that all of the compensation the Player is receiving or has been promised in the form of salary, transportation1968 U.S. Tax Ct. LEXIS 107">*116 * * * allowance or bonus of whatsoever nature from any club, person, agent, organization or corporation during the life of this Agreement or thereafter or has been paid prior to the execution of said contract, if incident to the signing thereof, by any club, person, agent, organization or corporation is set forth in the contract to which this certificate is attached.
We, and each of us, execute this certificate with full knowledge that if its contents be found false, the Club and the undersigned Player may each be fined an amount not in excess of Five Hundred Dollars ($ 500.00) and the President and/or the undersigned Official may be suspended from participation in National Association affairs and/or the undersigned Player suspended, for a period of not to exceed two (2) years from the date the decision is rendered finding said 50 T.C. 466">*470 certificate to be false, all as the President of the National Association may determine.
(S) Richard A. Allen
Player Sign Here
(S) Eugene J. Martin
Authorized Club Official Sign Here
Uniform Player Contract
The Williamsport Base Ball Club, herein called the Club, a member of the Eastern League, and Richard Anthony Allen, herein called the player, 1968 U.S. Tax Ct. LEXIS 107">*117 of Wampum, Penna., are the parties of this contract.
* * * *
In consideration of the facts above recited and of the promises of each to the other, the parties agree as follows:
1. The Club hereby employs the Player to render, and the Player agrees to render, skilled services as a baseball player in connection with all games of the Club during the year 1960 * * *. The Player covenants that at the time he signs this contract he is not under contract or contractual obligation to any baseball club other than the one party to this contract and that he is capable of and will perform with expertness, diligence and fidelity the service stated and such other duties as may be required of him in such employment.
2. For the service aforesaid subsequent to the training season the Club will pay the Player at the rate of $ eight hundred fifty dollars per month, as follows: * * *
* * * *
5. (a) The Player agrees that, while under contract and prior to expiration of the Club's right to renew the contract, and until he reports to his club for spring training, if this contract is renewed, for the purpose of avoiding injuries he will not play baseball otherwise than for the Club, except that he may 1968 U.S. Tax Ct. LEXIS 107">*118 participate in post-season games as prescribed in the National Association Agreement.
(b) The Player and the Club recognize and agree that the Player's participation in other sports may impair or destroy his ability and skill as a baseball player. Accordingly, the Player agrees he will not engage in professional boxing or wrestling and that, except with the written consent of the Club, he will not play professionel football, basketball, hockey or other contact sport.
6. (a) The Player agrees that this contract may be assigned by the Club (and reassigned by any assignee Club) to any other Club in accordance with the Professional Baseball Rules and National Association Agreement.
* * * *
10. (a) On or before March 1 * * * of the year next following the playing season covered by this contract, the Club may notify the Player of its intention to renew this contract, by tendering him a contract for the term of such year, except that the compensation rate shall be such as the parties may then agree upon. * * * In the absence of agreement by the parties, the compensation rate shall be determined as provided in paragraph 11, but pending such determination the Player will accept the compensation1968 U.S. Tax Ct. LEXIS 107">*119 rate fixed by the Club or else will not play otherwise than for the Club.
(b) The Club's right to renew this contract as provided in sub-paragraph (a) of this paragraph 10 and all covenants, promises and representations of the Player have been taken into consideration in determining the amount payable under paragraph 2 hereof.
50 T.C. 466">*471 11. (a) In the case of dispute between the Player and the Club arising under the provisions of this contract, the same shall be referred to the Executive Committee or the President of the National Association, as an arbitrator, and the arbitrator's decision shall be accepted by all parties as final, subject only to such right of appeal as is given to the Player only, under the terms of the National Association Agreement and the Professional Baseball Agreement and Rules Publication.
* * * *
14. If Player is to receive or has received any additional compensation of any nature or kind whatsoever from the Club or from any other source whatsoever in connection with this contract which is not set forth in paragraph 2 of this contract, it must be inserted below, giving name of payor, amount and nature of payment, when paid or to be paid, etc.
| Player is to receive bonus of $ 6,000 payable June 2, 1960 | |||
| Do | $ 8,000 | do | June 1, 1961 |
| Do | $ 8,000 | do | June 1, 1962 |
| Do | $ 4,000 | do | June 1, 1963 |
| Do | $ 4,000 | do | June 1, 1964 |
1968 U.S. Tax Ct. LEXIS 107">*120 Mother Mrs. Era Allen is to receive bonus of $ 16,000 payable June 2, 1960
Mother Mrs. Era Allen is to receive bonus of $ 10,000 payable June 1, 1961
Mother Mrs. Era Allen is to receive bonus of $ 6,000 payable June 2, 1962
Mother Mrs. Era Allen is to receive bonus of $ 4,000 payable June 2, 1963
Mother Mrs. Era Allen is to receive bonus of $ 4,000 payable June 2, 1964
Total bonus seventy thousand dollars guaranteed.
* * * *
This contract shall not be valid or effective unless filed with and approved by the President of the National Association. * * *
It was generally the practice in baseball to have the signature of a parent or guardian when signing a player under the age of 21 to a contract, and a contract lacking such signature would probably not have been approved by the president of the National Association of Professional Baseball Leagues.
The installments of the $ 70,000 bonus agreed to by the Williamsport Baseball Club in its contract with petitioner were actually paid by the Phillies under their "working agreement" with the Williamsport Club. The Phillies viewed such bonus arrangements as consideration to induce a player to sign a contract which thus tied him to the Phillies1968 U.S. Tax Ct. LEXIS 107">*121 and prevented his playing baseball for any other club without the consent of the Phillies. These bonus arrangements represented a gamble on the part of the Phillies, for a player might not actually have the ability to play in the major leagues, or might decide on his own that he no longer wanted to play baseball. The Phillies could not recover bonus money already paid, and as a matter of baseball practice felt obligated to pay a bonus, once agreed to, in all events, even if some part of the bonus still remained unpaid when the player left or was given his unconditional release by the club. Nevertheless, in light of petitioner's 50 T.C. 466">*472 future potential and ability, Ogden, who negotiated petitioner's bonus, and Quinn, who had the final say in these matters, felt that $ 70,000 was a fair price to pay to "get" the right to petitioner's services as a professional baseball player. It was a matter of indifference to them as to whom the bonus was paid or what division was made of the money. The previous year, in 1959, the Phillies had paid a bonus of approximately $ 100,000 to one Ted Kazanski and in 1960, at about the same time they signed petitioner, the Phillies paid a bonus of1968 U.S. Tax Ct. LEXIS 107">*122 approximately $ 40,000 to one Bruce Gruber.
Following the execution of the foregoing contract in June 1960 with the Williamsport Club, petitioner performed services as a professional baseball player under annual contracts for various minor league teams affiliated with the Phillies until sometime in 1963. From that time, he has performed his services directly for the Phillies, and in 1967 his annual salary as a baseball player was approximately $ 65,000.
Petitioner (and his wife Barbara Allen in the taxable year 1963) reported as taxable ordinary income in his (their) Federal income tax returns for the taxable years 1960, 1961, 1962, and 1963 the bonus payments received by petitioner in each of said years, as follows:
| 1960 | $ 6,000 |
| 1961 | 8,000 |
| 1962 | 8,000 |
| 1963 | 4,000 |
Petitioner's mother, Era Allen, reported as taxable ordinary income in her Federal income tax returns for the taxable years 1960, 1961, 1962, and 1963 the payments received by her in each of said years, as follows:
| 1960 | $ 16,000 |
| 1961 | 10,000 |
| 1962 | 6,000 |
| 1963 | 4,000 |
In his notice of deficiency to petitioner in respect of the taxable years 1961 and 1962, and his notice of deficiency to petitioner Richard1968 U.S. Tax Ct. LEXIS 107">*123 and his wife Barbara Allen in respect of the taxable year 1963, the Commissioner determined that the bonus payments received by petitioner's mother in 1961, 1962, and 1963 represented amounts received in respect of a minor child and were taxable to petitioner under sections 61 and 73 of the Internal Revenue Code of 1954; he increased petitioner's taxable income in each of those years accordingly.
OPINION
1. Inclusion of Bonus in Petitioner's Gross Income. -- (a) Petitioner was only 18 years old when the events giving rise to the 50 T.C. 466">*473 bonus payments in controversy took place. Accordingly, if the payments made during the years in issue (1961-63) by the Phillies to Era Allen, petitioner's mother, constitute "amounts received in respect of the services" of petitioners within the meaning of section 73(a), I.R.C. 1954, 2 then plainly they must be included in petitioner's gross income rather than in that of his mother. Although petitioner contends that the statute does not cover the present situation, we hold that the payments made to his mother during the years in issue were received solely in respect of petitioner's services, and that all such amounts were therefore includable1968 U.S. Tax Ct. LEXIS 107">*124 in his income.
Petitioner argues that the payments received by his mother, totaling $ 40,000 over a 5-year period, were not part of his bonus for signing a contract to play baseball for the Phillies organization, but rather represented compensation for services performed by her, paid by the 1968 U.S. Tax Ct. LEXIS 107">*125 Phillies in return for her influencing petitioner to sign the contract and giving her written consent thereto. But there was no evidence of any written or oral agreement between the Phillies and Era Allen in which she agreed to further the Phillies' interests in this manner, and we shall not lightly infer the existence of an agreement by a mother dealing on behalf of her minor child which would or could have the effect of consigning her child's interests to a secondary position so that she might act for her own profit. Moreover, we think the evidence in the record consistently points to the conclusion that the payments received from the Phillies by Era Allen were considered and treated by the parties as part of petitioner's total bonus of $ 70,000. This sum was paid by the Phillies solely to obtain the exclusive right to petitioner's services as a professional baseball player; no portion thereof was in fact paid for his mother's consent.
We note, first of all, that there was no separate written agreement between the Phillies and Era Allen concerning the payment of $ 40,000 to her, and that in fact the sole provision of which we are aware for the payment of this sum appears in the1968 U.S. Tax Ct. LEXIS 107">*126 contract between petitioner and the Williamsport Baseball Club, a minor league baseball club affiliated with the Phillies under a "working agreement" which entitled the Phillies to claim the contract and the services of any player on the club at 50 T.C. 466">*474 any time. Petitioner's contract, a uniform player's contract standard in professional baseball, contained a paragraph requiring the parties to set forth any "additional compensation" (aside from the regular payment of salary) received or to be received from the club "in connection with this contract," and it is in the space provided for such "additional compensation" that all the annual installments of petitioner's bonus, both those payable to petitioner and those payable to his mother, are set forth. After a description of all such installments, identifying the payee (petitioner or his mother), the amount and the date due, appear the words: "Total bonus seventy thousand dollars guaranteed." Moreover, if further proof be needed that the Phillies did not consider any part of the $ 70,000 bonus as compensation for Era Allen's services it is provided by the testimony of John Ogden, the baseball scout responsible for petitioner's signing1968 U.S. Tax Ct. LEXIS 107">*127 a contract with the Phillies' organization. Although Ogden resisted being pinned down, the clear import of his testimony was that the total bonus paid was determined solely by petitioner's ability to play baseball and his future prospects as a player, that the Phillies considered $ 70,000 a fair price to pay for the right to petitioner's services, and that it made little difference to them whether petitioner's mother received any part of the bonus so determined.
Era Allen herself did not claim to be entitled to $ 40,000 by virtue of any services performed for or on behalf of the Phillies, and in fact made clear in her testimony that she bargained, as one would expect, "for whatever was best for my son." Rather, she insisted upon a large portion of petitioner's bonus because she felt that petitioner would never have reached the point at which he was able to sign a lucrative contract with a professional baseball team had it not been for her hard work and perseverance in supporting him. And indeed, as the mother of a minor child, one who by the fruits of her own labor had contributed to the support of her minor child without the help of the child's father, she appears to have been 1968 U.S. Tax Ct. LEXIS 107">*128 entitled to all of petitioner's earnings under Pennsylvania law. Pa. Stat. tit. 48, sec. 91 (1965). 3
1968 U.S. Tax Ct. LEXIS 107">*129 50 T.C. 466">*475 Prior to 1944, the Commissioner's rulings and regulations "required a parent to report in his (or her) return the earnings of a minor child, if under the laws of the state where they resided the parent had a right to such earnings," even if none or only part of the child's earnings were actually appropriated by the parent. Jacob DeKorse, 5 T.C. 94">5 T.C. 94, 5 T.C. 94">101, affirmed per curiam 158 F.2d 801 (C.A. 6). See also O.D. 797, 4 C.B. 214; I.T. 2352, VI-1 C.B. 32. Because parents were not entitled to the earnings of their minor children in all States, and because even in those States following this common-law doctrine the parents' right to the earnings of a minor child could be lost if it was found that the child had been emancipated, the result of the Commissioner's policy was that:
for Federal income tax purposes, opposite results * * * [obtained] under the same set of facts depending upon the applicable State law. In addition, such variations in the facts as make applicable the exceptions to the general rule in each jurisdiction [tended] to produce additional uncertainty with respect to the 1968 U.S. Tax Ct. LEXIS 107">*130 tax treatment of the earnings of minor children.
H. Rept. No. 1365, 78th Cong., 2d Sess., p. 21 (1944); S. Rept. No. 885, 78th Cong., 2d Sess., p. 22. To remedy these defects, Congress in 1944 enacted the substantially identical predecessor of section 73 of the Internal Revenue Code of 1954, providing the easily determinable and uniform rule that all amounts received "in respect of the services of a child" shall be included in his income. "Thus, even though the contract of employment is made directly by the parent and the parent receives the compensation for the services, for the purposes of the Federal income tax the amounts would be considered to be taxable to the child because earned by him." H. Rept. No. 1365, 78th Cong., 2d Sess., p. 21 (1944); S. Rept. No. 885, 78th Cong., 2d Sess., p. 22, 23. We think section 73 reverses what would have been the likely result in this case under pre-1944 law wholly apart from the contract, and that the $ 70,000 bonus is taxable in full to petitioner.
Petitioner stresses the fact that the $ 70,000 bonus paid by the Phillies did not constitute a direct payment for his "services" as a professional baseball player, which were to be compensated1968 U.S. Tax Ct. LEXIS 107">*131 at an agreed salary of $ 850 per month, for the $ 70,000 was to be paid in all events, whether or not petitioner ever performed any services for the Phillies organization. Therefore, it is argued, the bonus payments could not have constituted compensation for services which alone are taxed to a minor child under section 73. Cf. Rev. Rul. 58-145, 1958-1 C.B. 360. This argument misreads the statute, which speaks in terms of "amounts received in respect of the services of a child," and not merely of compensation for services performed. True, petitioner performed no services in the usual sense for his $ 70,000 bonus, unless his act of 50 T.C. 466">*476 signing the contract be considered such, but the bonus payments here were paid by the Phillies as an inducement to obtain his services as a professional baseball player and to preclude him from rendering those services to other professional baseball teams; they thus certainly constituted amounts received "in respect of" his services.
This is not merely a technically correct interpretation of the statute; it is consistent with and necessary to the achievement of its purposes. Although a bonus1968 U.S. Tax Ct. LEXIS 107">*132 such as that involved here is admittedly an indirect rather than a direct payment for services, there can be little doubt that it would be considered part of a child's "earnings" for the purpose of the common-law rule giving a father the right to the services and earnings of his minor children, 4 and for the purpose of statutes such as that in Pennsylvania (Pa. Stat. tit. 48, sec. 91, fn. 3, supra), extending this right to the mother. So, if the uniform rule of section 73 be held inapplicable to such bonuses, their treatment for tax purposes when earned by a minor would then be subject once again to the peculiarities of local law and to the factual imbroglio precipitated by the common-law rules in respect of the earnings of a minor child, the very problems which led to the enactment of section 73. To be sure, the committee reports on the predecessor of section 73 refer at one point to the need for uniformity in the taxation of "compensation for services performed by a minor child" (emphasis added), but it seems likely that the bonus situation which we have here was at most overlooked, not intentionally omitted. Certainly the legislators took no chances with the statute1968 U.S. Tax Ct. LEXIS 107">*133 itself, which speaks in the much broader terms of any "amounts received in respect of the services" of a child. There is no readily apparent reason why the narrow construction urged by petitioner should have been intended by Congress, and the language of the committee reports, though not necessarily inconsistent with the result we reach, must in any event yield in the interpretation of section 73 to the clear legislative purposes which prompted its enactment. Cf. Alfred N. Hoffman, 47 T.C. 218">47 T.C. 218, 47 T.C. 218">235, affirmed per curiam 391 F.2d 930">391 F.2d 930 (C.A. 5).
(b) Even if the amounts in issue were not received "in respect of the services" of a child under section 73, we think that the bonus installments paid to petitioner's mother1968 U.S. Tax Ct. LEXIS 107">*134 during the tax years 1961-63 are nevertheless chargeable to him under the general provisions of section 61. 5 It has long been established that one who becomes entitled to 50 T.C. 466">*477 receive income may not avoid tax thereon by causing it to be paid to another through "anticipatory arrangements however skillfully devised." Lucas v. Earl, 281 U.S. 111">281 U.S. 111, 281 U.S. 111">114-115; Helvering v. Horst, 311 U.S. 112">311 U.S. 112; Helvering v. Eubank, 311 U.S. 122">311 U.S. 122; Harrison v. Schaffner, 312 U.S. 579">312 U.S. 579.
As indicated above, the entire $ 70,000 bonus was paid as consideration for petitioner's agreement to play baseball for the Phillies or any team designated by the Phillies. We reject as contrary to fact1968 U.S. Tax Ct. LEXIS 107">*135 the argument that part of that amount was paid to his mother for her consent to the contract. It was petitioner, and petitioner alone who was the source of the income, and it is a matter of no consequence that his mother thought that she was entitled to some of that income because of her conscientious upbringing of petitioner. Regardless of the motives involved, the situation remains one of deflection of a portion of petitioner's bonus income to his mother and he cannot escape the tax consequences thereof.
Accordingly, even if the bonus payments may not be considered as amounts received in respect of services so as to be covered by section 73(a), they nevertheless represent income of petitioner, taxable to him, notwithstanding the arrangement to have a portion thereof paid to his mother.
2. Petitioner's Alternative Contention -- Deduction of Bonus Payments From His Gross Income. -- Finally, petitioner argues alternatively that if his entire $ 70,000 bonus is includable in his income, he should be allowed to deduct the bonus payments received by his mother as an ordinary and necessary" expense incurred in carrying on his trade or business as a professional baseball player. 1968 U.S. Tax Ct. LEXIS 107">*136 He places great reliance in this argument upon Cecil Randolph Hundley, Jr., 48 T.C. 339">48 T.C. 339, acq. 1967-2 C.B. 2, a case recently decided by this Court in which a professional baseball player was allowed to deduct that portion of his bonus for signing a baseball contract which was paid directly to his father, the result of an agreement entered into some 2 years before the contract was signed as a means of compensating the father for his services as a baseball coach and business agent. 61968 U.S. Tax Ct. LEXIS 107">*137 However, the special facts in Hundley, which supported a finding of reasonableness for the amount of the deduction claimed and warranted the conclusion that the amounts paid there in fact represented a bona 50 T.C. 466">*478 fide expense incurred in carrying on the taxpayer's trade or business of being a professional baseball player, are almost entirely absent here. 7
1968 U.S. Tax Ct. LEXIS 107">*138 It is unnecessary to determine the exact sum which would have constituted a reasonable payment to Era Allen for her services, though we note that only $ 2,000 was paid to her son Coy Allen for the advice she so greatly relied on, for we are certain that in any case it could not have exceeded the $ 16,000 received by her in 1960. Although the year 1960 is not before us in these proceedings, we can and do take into account the payment made to her in that year in determining whether the deductions now claimed by petitioner for payments made to her in the years 1961, 1962, and 1963 are reasonable in amount and deductible as "ordinary and necessary" business expenses. We think they clearly are not, and hold that petitioner is not entitled to deductions in any amount for payments made to his mother in those years.
Decisions will be entered for the respondent.
Footnotes
1. The year 1960 is not at issue in these proceedings, but is open on a claim for refund filed by petitioner Richard A. Allen.↩
2. SEC. 73. SERVICES OF CHILD.
(a) Treatment of Amounts Received. -- Amounts received in respect of the services of a child shall be included in his gross income and not in the gross income of the parent, even though such amounts are not received by the child.
(b) Treatment of Expenditures. -- All expenditures by the parent or the child attributable to amounts which are includible in the gross income of the child (and not of the parent) solely by reason of subsection (a) shall be treated as paid or incurred by the child.
(c) Parent Defined. -- For purposes of this section, the term "parent" includes an individual who is entitled to the services of a child by reason of having parental rights and duties in respect of the child.↩
3. SEC. 91. Mother to have same power and control over minor child as father; right of action for injuries to child
Hereafter a married woman, who is the mother of a minor child (and who contributes by the fruits of her own labor or otherwise toward the support, maintenance and education of her said minor child), * * * shall have the same and equal right to its custody and services and earnings as is now by law possessed by her husband, who is the father of such minor child: Provided, however, That the mother of such minor child is otherwise qualified as a fit and proper person to have the control and custody of said child. If either the father or the mother desert their child or fail to perform their parental duties the right to the custody, services, and earnings of the child shall belong to the other: Provided, however, That such remaining parent is otherwise qualified as a fit and proper person to have the control and custody of said child. * * *
The father's right to the earnings of a minor child under common-law doctrine has been long established in Pennsylvania. See Kauffelt v. Moderwell, 21 Pa. 222">21 Pa. 222 (1853); Beaver, Bare & Co. v. Bare, 104 Pa. 58">104 Pa. 58↩ (1883).
4. For the rationale given by the Supreme Court of Pennsylvania of the common-law doctrine that a parent is entitled to the services and earnings of his child, see Beaver, Bare & Co. v. Bare, 104 Pa. 58">104 Pa. 58, 104 Pa. 58">62↩ (1883).
5. SEC. 61. GROSS INCOME DEFINED.
(a) General Definition. -- Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:↩
6. As here, the player originally attempted to exclude all amounts received by his father from his gross income, and the Commissioner contended that such amounts were includable in his income under sec. 61(a) and sec. 73, since the player there was also a minor when the contract was signed. The player subsequently conceded on brief that all bonus payments were properly includable in his gross income, including those made directly to his father. And in the opinion it was noted that "beyond question * * * the $ 11,000 received by * * * (petitioner's father) actually represented an amount paid in consideration of obtaining petitioner's services as a professional baseball player." 48 T.C. 339">48 T.C. 339, 48 T.C. 339">344↩.
7. In Hundley, the player's father was a former semiprofessional baseball player and baseball coach who spent many hours coaching his son, at the expense of his own construction business, teaching him a "unique one-handed catching technique" and making him into a baseball player of professional caliber; he traveled for 2 years at his own expense to keep in close touch and on friendly terms with all the baseball scouts; and when his son graduated from high school he conducted the final negotiations in an "unusual and skillful" manner whereby all the representatives of the various baseball teams were allowed to make secret offers during a 2-week period following his son's graduation from high school. See 48 T.C. 339">48 T.C. 339, 48 T.C. 339">346. Here, on the other hand, petitioner's mother had nothing whatever to do with her son's development as a baseball player, and in fact knew nothing about baseball or financial matters and had to rely upon her son Coy Allen in her negotiations with the scouts. Moreover, in Hundley↩, the large sum payable to the father was received under a contingent compensation agreement entered into some 2 years earlier which entitled him to receive 50 percent of any bonus which his son might receive for signing a baseball contract. Since the agreement had been reached at a time when it was uncertain whether the son would develop into a player of professional baseball caliber and, even if he did, whether he would receive any bonus whatever, and when bonuses that were paid by professional baseball teams were usually small, the Court held that the agreement was reasonable when made and that the compensation received thereunder was therefore reasonable in amount. There was no preexisting agreement between petitioner and his mother in this case, however, and no persuasive explanation as to why her services were thought to be worth $ 40,000.