The Basketball Player

In: Business and Management

Submitted By lubershane
Words 536
Pages 3
As everyone agrees, this is a case about a basketball player, Charles Johnson, who tried to shift income by signing an agreement with a corporation called Presentaciones Musicales S.A., a Panamanian corporation [PMS.] This corporation was to pay him a monthly salary, in return for his assigning his income to them, during the years 1975-1977.

The Tax Court found that this strategy violated the major tax code concept that “first principle of income taxation: that income must be taxed to him who earns it.” [Commissioner v. Culbertson, 337 U.S. 733, 739-740 (1949).]

First, the significant finding was that although Johnson signed a contract with PMSA (and later this was transferred to another corporation, EST), the compensation agreement was between Johnson and the basketball team/club, and that no such agreement existed between the club and the corporation.

Further, it was noted that Johnson’s relationship with the club did not change after he signed the contract with the corporation, and that the corporation took no significant action in negotiating with the club, nor directing Johnson’s behavior, specifically “the agreement's control provisions systematically were ignored.”

Therefore, the Court decided that the basketball club was paying Johnson, and he is liable for taxes on all of those payments.
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I noticed several things that disturbed me for this individual:

1. If you add up all the payments he received, it doesn’t seem to total anywhere near the compensation the club paid. It looks like everyone else, the lawyer acting as agent, and the PMSA took in money. So, although the judgment was against Johnson, he effectively didn’t seem to earn the money. Perhaps we are missing details on all the dispensation of…...

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