Personal services income is subject to regular U.S. income tax rates.

FORBES: Tax Court to Athletes: Image Isn't Everything But It's At Least 50%

And as a result, the court agreed with Goosen that income received from those contracts could be classified as half royalty income and half personal services income.

FORBES: Tax Court to Athletes: Image Isn't Everything But It's At Least 50%

While Goosen and the IRS both agreed that personal services income, tournament bonuses and ranking bonuses should be considered US sourced, they disagreed as to what portion of the royalty income from endorsement fees should be considered US sourced.

FORBES: Tax Court to Athletes: Image Isn't Everything But It's At Least 50%

The IRS argued the personal services point, downplaying the royalty income based on his image.

FORBES: IRS Sand Trap For Pro Golfers

Filing non-resident U.S. tax returns, Goosen allocated 50% of his endorsement fees and bonuses from Acushnet, TaylorMade and Izod to personal services, classifying the other 50% as royalty income.

FORBES: IRS Sand Trap For Pro Golfers

This is so because it can be argued that the S corporation would not generate any revenue without the personal services of its shareholders, and thus the entire amount of S corporation income should be paid out in salary.

FORBES: Senate Proposal for Tax Reform Part II: Democrats Seek To End S Corporation Payroll Tax Loophole

Existing U.S. law defines earned income as salary and wages, commission, bonus, professional fees and tips received for personal services.

FORBES: A Taxing Proposal For Expat Americans?