I have to compare werner case to Richard Allen and cecil case and make a tax memo

Checkpoint Contents Federal Library Federal Source Materials Federal Tax Decisions Tax Court Reported Decisions Tax Court & Board of Tax Appeals Reported Decisions (Prior Years) 1967 48 CECIL RANDOLPH HUNDLEY, JR., 48 TC 339, 06/19/1967 Tax Court & Board of Tax Appeals Reported Decisions CECIL RANDOLPH HUNDLEY, JR., 48 TC 339 Cecil Randolph Hundley, Jr., Petitionerv.Commissioner of Internal Revenue, Respondent Case Information: [pg. 339] Code Sec(s): Docket: Docket No. 3075-64. Date Issued: 06/19/1967 Judge: Opinion by HOYT, J. Tax Year(s): Year 1960. Disposition: Decision for Taxpayer. HEADNOTE 1. BUSINESS EXPENSES-Compensation paid for services-reasonableness-keyed to gross profits or sales. Business expense deduction allowed professional baseball player. 50% contingent compensation agreement with his father was reasonable. Agreement was based on time that would be spent in training and representing taxpayer as baseball player, and that ultimate receipt of payment was uncertain and undeterminable. Payments were made after services were rendered but while taxpayer was engaged in trade or business. Services rendered were more than educational since father not only trained taxpayer to be baseball player, but also was his publicity manager, and his agent. Reference(s): 1967 P-H Fed. 11,693(10). Syllabus Official Tax Court Syllabus Petitioner entered into an agreement with his father in 1958 to share equally any bonus he might receive for signing a professional baseball contract as compensation for his father's coaching efforts to make him a better baseball player, to serve as his business manager, advisor, and agent and to obtain the best possible professional baseball contract for him. Petitioner signed a professional baseball contract in 1960 as a result of his father's exceptional representation and negotiating skill which provided for a monthly salary of not less than $1,000 for the length of his contract and a bonus of $110,000 to be received by petitioner and his father in five equal annual installments. Held, that the annual $11,000 payment of the bonus made to petitioner's father in 1960 should be allowed as a business expense deduction to petitioner for his 1960 taxable year. Counsel Robert Ash and Donald L. Mooers, for the petitioner. Douglas O. Tice, Jr., for the respondent. HOYT, Judge: Respondent determined a deficiency in petitioner's income tax for 1960 in the amount of $5,334.85. The only question presented for our decision is what portion of a $22,000 cash bonus earned by petitioner in 1960 for signing a professional baseball contract is deductible as the reasonable value of services actually performed by petitioner's father. [pg. 340] FINDINGS OF FACT The stipulated facts are found accordingly and adopted as our findings. Cecil Randolph Hundley, Jr. (hereinafter referred to as petitioner), filed his 1960 income tax return with the district director of internal revenue, Richmond, Va. Martinsville, Va., was his legal residence at the time petitioner filed the petition herein. Petitioner is a professional baseball player and at the time of trial was a catcher for the Chicago Cubs of the National League. Petitioner's father, Cecil Randolph Hundley, Sr. (hereinafter referred to as Cecil), is a former semiprofessional baseball player, and he has also been a baseball coach. Cecil played as a catcher throughout his baseball career, and received numerous injuries to his throwing hand while using the traditional two-handed method of catching. This is a common problem of catchers. A few years before Cecil retired from active participation in baseball as a player, he developed a one-handed method of catching which was unique and unorthodox. This technique was beneficial because injuries to the catcher's throwing hand were avoided. Cecil became actively engaged in the construction and excavation business in 1947 and was still engaged in that business at the time of trial. Petitioner attended Bassett High School near Martinsville, Va., from which he graduated in June of 1960. During 1958 petitioner was a member of his high school baseball team and the local American Legion team. He played catcher for both teams and was an outstanding player. In the spring of 1958, while a sophomore in high school, petitioner decided that he wanted to become a good major league professional ball player. Petitioner believed that Cecil was best qualified to coach and train him for the attainment of this goal. After discussing his ambition with Cecil, an oral agreement was reached between petitioner and Cecil. Cecil agreed to devote his efforts to a program of intensive training of petitioner in the skills of baseball, to act as petitioner's coach, business agent, manager, publicity director, and sales agent in negotiating with professional baseball teams for a contract. His role may best be described in petitioner's own words used when he first asked Cecil to handle things for him in 1958: "Daddy, do the business part and let me play the ball." As compensation for Cecil's services, it was agreed that Cecil would receive 50 percent of any bonus that might be received under the terms of a professional baseball contract if one should later be signed. This contingent payment agreement was thought to be fair and reasonable by the parties since it was unknown at that time whether petitioner would ever develop into a player with major league potential or sign [pg. 341] a professional baseball contract or receive a bonus for signing. Moreover, petitioner could not sign a baseball contract while still a minor without his parent's consent or until he graduated from high school. The size of baseball bonuses obtainable at some unknown time, years in the future, was extremely conjectural. A rule limiting bonuses to $4,000 for signing baseball contracts had been suspended in 1958 and its reinstatement was a definite possibility before 1960. It was not expected by petitioner or Cecil at that time that an exceptionally large bonus would ever be received. Later on they estimated that at most $25,000 might be paid to petitioner as a bonus. Between the spring of 1958 and petitioner's graduation from high school in 1960, Cecil devoted a great deal of time to petitioner's development into the best baseball player possible. Cecil became petitioner's coach and taught petitioner the skill of being a one-handed catcher. While this method is advantageous, it is difficult to master because it is contrary to natural instincts. The perfection of this unorthodox technique therefore required an inordinate amount of time and effort by the teacher and the pupil. Cecil also taught petitioner to be a power hitter in order to further enhance petitioner's appeal to professional baseball teams. Petitioner weighed only 155 pounds during his high school days which was a decided handicap for him both as a hitter and a catcher hoping to break into the big leagues. Cecil attended every baseball practice session and every home and away game in which petitioner participated between 1958 and 1960. On many of these occasions he met with scouts for big league teams. By mutual agreement, Cecil relieved petitioner's high school and American Legion coach from any duties with respect to petitioner. It was agreed between the coach and Cecil that it would be in the petitioner's interest for Cecil to be in complete charge of the training program. Cecil supplied petitioner with baseball equipment at his own expense during this period. In order to obtain the best possible professional baseball contract for petitioner, Cecil had many meetings with members of the press during the 2-year period from the spring of 1958 to June 16, 1960, to publicize petitioner's skill as a baseball player. Cecil handled all the negotiations with representatives of the many professional baseball teams that became interested in petitioner. This undertaking involved numerous meetings at home and out of town. Cecil left Sundays open for such negotiations for the entire 2-year period but negotiations often occurred on other days of the week. Cecil was never paid anything for the considerable expenses he incurred over the 2-year period. The amount of compensation to be received by Cecil was contingent on the obtainment and size of a bonus to be paid petitioner for signing [pg. 342] a professional baseball contract. In determining the percentage of the possible bonus to be received by Cecil, the parties also gave consideration to Cecil's increased expenses and the anticipated loss of time and income from his construction business. Cecil had to neglect his business and he lost several substantial contracts during the period of petitioner's intensive training. The amount of time he devoted to his grading and excavating business was substantially reduced during 1958, 1959, and 1960 with corresponding loss of business income. Petitioner developed into an outstanding high school baseball player under Cecil's tutorage and by 1960 many major league clubs had become interested in signing him. Due to the rule requiring high school graduation before signing a baseball contract, extensive final negotiation sessions with representatives of the various major league baseball teams did not begin until after petitioner's graduation in 1960. The final negotiation sessions were held at Cecil's home and after 2 weeks resulted in a professional baseball contract signed by petitioner on June 16, 1960. All of the negotiations with the many major league clubs bidding for petitioner's contract were handled by Cecil in such a way that the bidding for petitioner's signature was extremely competitive. Representatives of the various baseball teams were allowed to make as many offers as they wanted during the 2-week period, but the terms of any offer were not revealed to representatives of other teams. Cecil's expert and shrewd handling of the negotiations was instrumental in obtaining a most favorable contract and an extraordinarily large bonus for the petitioner. The baseball contract finally signed by petitioner was with a minor league affiliate of the San Francisco Giants of the National League. The contract provided for a bonus of $110,000 to be paid over a 5-year period at the rate of $22,000 per year, $11,000 to petitioner and $11,000 to Cecil, and a guaranteed salary to petitioner of not less than $1,000 per month during the baseball playing season for a period of 5 years. Cecil bargained for and insisted upon the minimum salary provision in addition to the large bonus because of his expectation that petitioner would be playing in the relatively low paying minor leagues for at least 5 years. Cecil also signed the contract because under the rules of professional baseball the signature of a minor was not accepted without the signature of his parent. The baseball contract contained the following pertinent provisions: 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, including the Club's training season, the Club's exhibition games, the Club's playing season, any official series in which the Club may participate, and in any game or games in the receipts of which the Player may be entitled to share. The Player covenants that at the time he signs this contract he is not under contract or contractual obligation to any baseball club [pg. 343] 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 $ one thousand dollars ($1,000) per month *** after the commencement of the playing season *** and end with the termination of the Club's scheduled playing season and any official league playoff series in which the Club participates. *** *** 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 cash bonus of one hundred and ten thousand dollars (110,000) payable as follows: Eleven thousand dollars ($11,000) upon approval of this contract by the National Association of Professional Baseball Leagues. Also eleven thousand dollars ($11,000) on Sept. 15, 1961; Sept. 15, 1962; Sept. 15, 1963; and Sept. 15, 1964. The father, Cecil R. Hundley, is to receive eleven thousand dollars ($11,000) upon approval of contract by the National Association of Professional Baseball Leagues. Also eleven thousand dollars ($11,000) on Sept. 15, 1961; Sept. 15, 1962: Sept. 15, 1963; and Sept. 15, 1964. An additional handwritten paragraph was also attached to the contract form which provided as follows: 6-16-60 This is to certify that the salary of C. Randolph Hundley, Jr., of Box 1389, Martinsville, Va. (Covington Road) is to be not less than $1,000 per month for the length of his contract (Running to 1964). The designation of $11,000 to be paid annually to Cecil for 5 years was a consequence of the agreement between Cecil and petitioner to divide equally any bonus received by petitioner for signing a professional baseball contract. The scout for the San Francisco Giants who negotiated the contract was aware of the aforementioned agreement before the contract was written, and the terms of the contract reflected the prior understanding of the contracting parties with respect to the division of the bonus payments. Petitioner's high school coach also knew of the 50-50 bonus agreement between petitioner and Cecil and had been aware of it since its inception in 1958. During the 1960 taxable year which is in issue, petitioner and Cecil each received $11,000 of the bonus from the National Exhibition Co. pursuant to the terms of the contract. Petitioner did not include the $11,000 payment received by Cecil in his gross income reported in his income tax return for 1960. Cecil duly reported it in his income tax return for that year. The notice of deficiency received by petitioner stated that income reported as received from the National Exhibition Co. was understated by the amount of $11,000. The parties are apparently in agreement [pg. 344] that petitioner understated his income for 1960 in the determined amount, but petitioner contends that an offsetting expense deduction of $11,000 should have been allowed for the payment received by Cecil as partial compensation for services rendered under the 1958 agreement between petitioner and Cecil. Respondent's position on brief is that only a $2,200 expense deduction, 10 percent of the total bonus payment in 1960, is allowable to petitioner in 1960 as the reasonable value of services performed by Cecil. The contract between Cecil and petitioner was made in 1958; it was bona fide and at arm's length, reasonable in light of the circumstances existing when made and in the taxable year before us. The payment of 50 percent of petitioner's bonus thereunder to Cecil in 1960 was compensation to him for services actually rendered to petitioner. He received and kept the $11,000 of the bonus paid directly to him by the ball club. OPINION Respondent's determination that an additional $11,000 should have been included in petitioner's income for 1960 is based upon section 61(a) 1 which provides that gross income includes compensation for services and section 73(a) which provides that amounts received in respect of the services of a child shall be included in the child's gross income even though such amounts are not received by the child. It is beyond question and on brief the parties agree that the $11,000 received by Cecil actually represented an amount paid in consideration of obtaining petitioner's services as a professional baseball player. Petitioner, while agreeing with the foregoing conclusion, argues that a deduction in the amount of $11,000 should be allowed for 1960 under section 162 or 212. Respondent has conceded that such a deduction should be allowed but only in the amount of $2,200. Section 162 provides that a deduction shall be allowed for an ordinary and necessary expense paid during the taxable year in carrying on any trade or business including a reasonable allowance for compensation for personal services actually rendered. Section 212 provides that an individual may deduct all ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income. Respondent argues there is insufficient evidence to establish an agreement in 1958 to share any bonus equally and that even if there were such an agreement no portion paid for Cecil's services to petitioner prior to 1960 is deductible because prior to his graduation, petitioner was not in the trade or business of being a baseball player. He contends [pg. 345] tends that the only service performed by Cecil for which petitioner is entitled to a deduction was the actual negotiation of the June 16, 1960, contract. He concedes on brief that a reasonable value for the services rendered by Cecil during the 2-week period from graduation to signing the contract is $2,200, 10 percent of the total bonus paid in 1960. Petitioner has introduced persuasive and convincing evidence that the agreement was in fact reached in the spring of 1958, and we have so found. This finding is essential to petitioner's position that a deduction for an ordinary and necessary business expense deduction in the amount of $11,000 should be allowed in 1960. He argues that a contingent right to 50 percent of any bonus obtained was a reasonable value for services rendered by Cecil between the spring of 1958 and the signing of the contract in 1960, and that payment for such services was therefore an ordinary and necessary expense associated with his business of professional baseball. We agree that the 50-percent contingent compensation agreement was reasonable in amount. Section 1.162-7(b)(2) 2 of the regulations sets forth a test for the deductibility of contingent compensation which we have accepted as correct in Roy Marilyn Stone Trust, 44 T.C. 349 (1965). We apply the test here. The primary elements considered by petitioner and Cecil in determining Cecil's contingent compensation were the amount of time that would be spent in coaching, training, and representing petitioner during the uncertain period between 1958 and an eventual contract. Cecil's exclusive handling of all publicity and contract negotiations and the income that would probably be lost due to less time spent on Cecil's construction business were also important factors. In addition to the foregoing considerations, emphasis should be placed on the fact that the ultimate receipt of a bonus of any kind was uncertain and indefinite. The amount was indeterminable and in 1958 neither petitioner, Cecil, nor the high school coach who was aware of the agreement had any notion that an exceptionally large bonus would be paid 2 years hence. Petitioner might well never have become a professional ballplayer, nor was it at all certain that he would be paid a bonus in the future. Viewing the circumstances at the time the agreement was [pg. 346] made in the light of all of the evidence before us we conclude and hold that the test of reasonableness has been met even though the contingent compensation may be greater than the amount which might be ordinarily paid. Cecil honed the edges of petitioner's ballplaying ability to razor sharpness by his skilled and dedicated coaching. Not only did he teach him his own unique one-handed catching technique, but he made a pull hitter out of a 155 pound boy. He diligently cultivated the major league clubs' scouts, traveling around for 2 years at his own expense to keep in close touch and on friendly terms with them all. When he was not away he received them in his home, entertaining them and their families and establishing a firm and cordial relationship. He kept petitioner in the public eye by handling his publicity so that almost every major league club sought to sign a contract with petitioner immediately upon his graduation from high school when he was first available. And, finally, he conducted the final negotiations in such an unusual and skillful manner that he not only obtained a huge bonus for petitioner's signature on a contract but also a minimum salary of $1,000 per month during the playing season for 5 years. While we recognize that the reasonableness of the contingent compensation is to be viewed in the light of the circumstances when the contract for it was made and that it is immaterial that in the actual working out of the contract such contingent compensation may prove greater than the amount which ordinarily would be paid, California Vegetable Concentrates, Inc., United States, 10 T.C. 1158 (1948), acq. 1948-2 C.B. 1, citing Austin v. 28 F. 2d 677 (C.A. 5, 1928); sec. 1.162-7(b)(2), Income Tax Regs., we have detailed the services performed which in our view demonstrate that the contingent compensation actually was not greater than ordinarily would be paid for so many varied skilled services. While it is true that an agreement of this sort between a father and his minor son cannot possess the arm's-length character of transactions between independent, knowledgeable businessmen and must be most carefully scrutinized, the agreement here stands every searching test. Independent and trustworthy witnesses verified its existence since 1958. It was in our judgment and in the opinion of both petitioner and Cecil, then and at trial, fair to both parties. See Olivia de Havilland Goodrich, 20 T.C. 323 (1953). Respondent contends that Cecil was an avid baseball fan and that he would have performed the same services for his son without compensation. However, he did not do so and there is no reason why he should be expected to. We are certain that a disinterested third party would not have agreed to undertake the duties and obligations assumed by Cecil without greater assurance of the resulting financial rewards. [pg. 347] And without doubt no one would have taken the risk of no return and still have performed with such dedication except an avid baseball fan and a skilled and devoted father. Because we are convinced of the preexisting nature of the agreement, its reasonable nature in view of the 1958 circumstances and the extremely valuable services rendered by Cecil, we are not persuaded by respondent's arguments. As we have already mentioned, the bonus eventually received was much larger than the parties had anticipated originally. It should not be concluded from this factor alone that the agreement was unfair and that payments received thereunder were unreasonable in amount. When the agreement was made in 1958 no bonuses of such size had been previously paid to high school ballplayers. Until that year the maximum bonus had been $4,000. However, the change in climate over the next 2 years coupled with petitioner's athletic skill and Cecil's services set the stage for the jackpot bonus which gives rise to this litigation. The combination paid off and the fact that realization was greater than expectation does not make the contract unreasonable. We conclude and hold that the payment received in 1960 by Cecil for services rendered to petitioner between the spring of 1958 and the date petitioner's professional baseball contract was signed in 1960 is reasonable in amount and that a portion of the payment received by Cecil cannot be disallowed as a deduction on this ground. Respondent contends further, however, that even if the bonus splitting agreement arose in 1958 and was intended to ultimately result in a reasonable amount of compensation for services rendered throughout the 2-year period, the full amount received by Cecil is still not deductible because petitioner was not engaged in a trade or business or any other income-producing activity until graduation from high school when he became eligible to sign a professional baseball contract. In order for an expenditure to qualify for deductibility under section 162 or 212, it must have been paid or incurred in carrying on any trade or business or for any other income producing or collecting activity. Respondent has relied upon a line of cases which stands for the proposition that expenses paid or incurred preparatory to entering into a business or profession are not paid or incurred in carrying on a trade or business or for the production of income and are not deductible under either section 162 or 212. Robert J. Wallendal, per curiam 31 T.C. 1249 (1959); Eugene H. Walet, Jr., 272 F. 2d 694 (C.A. 5, 1959); Frank B. Polachek, 31 T.C. 461 (1958), affirmed 22 T.C. 858 (1954); Morton Frank, 20 T.C. 511 (1953). However, the rationale behind this line of cases is that the taxpayer was not carrying on a trade or business in the taxable year in which the expenses were paid or incurred and deducted. This is not the situation here. [pg. 348] Respondent recognizes that petitioner was engaged in carrying on the trade or business of a professional baseball player after graduation from high school in 1960 when he signed the bonus contract. The compensation in question received by Cecil in 1960 was admittedly not due or incurred nor was it paid until petitioner was carrying on that trade or business. It could only be deductible in the year of payment since petitioner is a cash basis taxpayer. We are aware of no case, and respondent has cited none, which would bar a deduction in such a situation, even though the payment was for services rendered prior to the commencement of the trade or business. In Lucas v. Ox Fibre Brush Co., 281 U.S. 115 (1930), the taxpayer sought to deduct payment of additional compensation made during the taxable year in issue for personal services rendered by its officers in prior taxable years. In allowing the deduction, the Supreme Court noted that there is no requirement that the services should actually be rendered in the same taxable year as the payments made therefor, but only that the payments therefor shall be proper expenses paid or incurred during the year. See also Associated Theatres Corporation, taxpayer was on the accrual basis. The Court said: 14 T.C. 313 (1950). In the Ox Fibre Brush case the The payments in the present instance were actually made in the year 1920. The expenses represented by these payments were incurred in that year, for it is undisputed that there was no prior agreement or legal obligation to pay the additional compensation. This compensation for past services, it being admitted that it was reasonable in amount in view of the large benefits which the corporation had received as the fruits of these services, the corporation had a right to pay, if it saw fit. There is no suggestion of attempted evasion or abuse. *** Paraphrasing that language to apply to the facts here, the payment in this case was actually made in the year 1960. The expenses represented by this payment were incurred in that year for it is undisputed that prior to the execution of the June 16, 1960, baseball contract there was no legal obligation under the 1958 agreement for petitioner to share his bonus with his father. This compensation for past services, which we have found and held was reasonable in amount, petitioner not only had a right but a duty and obligation to pay in 1960. There is no suggestion of attempted evasion or abuse. The contingent compensation agreement was so closely bound up with the existence of the petitioner's business activity of professional baseball that payments made thereunder must be considered as paid in carrying on a trade or business. If petitioner had never entered the business of professional baseball or had not been paid a bonus therefor, no payments would have been made to or received by Cecil. The whole basis of the agreement was the ultimate existence and establishment of the contemplated business activity and the collection of a bonus. We therefore conclude that payments made under the terms [pg. 349] of the agreement were paid for services actually rendered in carrying on a business. The obligation to make the payments to Cecil was an obligation of the business since there would be no obligation without the business. If the business were entered without payment of a bonus, there also would be no obligation to share it with Cecil. The unique relationship of Cecil's compensation to the professional baseball contract and petitioner's income derived therefrom in 1960 is most persuasive of the deductible nature of the compensation payment made that year. Respondent's final argument, raised herein for the first time on brief, is based on the premise that the services rendered prior to high school graduation were basically educational in nature, and that educational expenditures are personal and nondeductible if undertaken primarily for the purpose of obtaining a new position or substantial advancement in position. See sec. 1.162-5(b), Income Tax Regs. We have previously held that claimed deductions for educational expenditures of the foregoing type are not allowable. Mary O. Furner, (1961); and Arnold Namrow, 47 T.C. 165 (1966); Joseph T. Booth III, 33 T.C. 419 (1959), affd. 35 T.C. 1144 288 F.2d 648 (C.A. 4, 1961). However, petitioner is not claiming a deduction in the amount of $11,000 for educational expenditures, and indeed he could not. It is clear that a significant portion of Cecil's compensation was not for coaching and training petitioner in the skills of baseball, if that be deemed education, but for other services rendered throughout the 2-year period. These other services were varied, time consuming, and expensive for Cecil to perform and included acting as petitioner's business advisor and manager, publicizing petitioner's name, and handling press relations and preliminary contacts and negotiations with interested professional baseball teams. More than half of Cecil's time was devoted to dealing with scouts over the 1958-60 period. Finally, they included the 2 weeks of intensive negotiations leading to the final signing of the bonus contract. We agree with petitioner's contention that the elements of the contingent compensation agreement cannot be fragmented so as to place an isolated value on each of the areas in which Cecil rendered personal services. It was a package deal and cannot be sliced up into its various component parts. The contingent compensation agreement is properly viewed as essentially a joint venture arrangement between Cecil and petitioner looking toward the eventual business of petitioner as a baseball player. Each person devoted his skills to the undertaking with the hope of eventual financial reward. We recognize that this undertaking fell short of carrying on a trade or business prior to petitioner's graduation from high school and signing his baseball contract. When the joint venture analysis is utilized, however, it seems illogical to segregate a [pg. 350] portion of Cecil's share and label it an educational expenditure for petitioner's improvement of his baseball skills between 1958 and 1960. The large bonus was attributable to the mutual efforts of Cecil and petitioner. Cecil's share of the bonus is included in petitioner's gross income on the theory that the full bonus was for his future services as a professional baseball player. The preexisting obligation to share half of the bonus with Cecil had the effect of reducing petitioner's financial gain from the bonus. In effect Cecil's services were a grubstake repayable if, as and when petitioner struck it rich. It thus becomes apparent that, from petitioner's point of view, Cecil's share of the bonus was an expense of obtaining and receiving the bonus, the fruits of their combined skills and efforts, and that payments received by Cecil under the terms of the contingent compensation agreement should be so considered. No payment occurred until petitioner was carrying on a business, and the payment was directly connected with the business and reasonable in amount. The expenditure was ordinary and necessary under the circumstances. We hold, therefore, that whereas respondent acted correctly in including the entire $22,000 bonus in petitioner's taxable income, petitioner should be nevertheless allowed a deduction in the amount of $11,000 in 1960 as a business expense for the portion of the bonus paid directly to Cecil for his personal services actually rendered with such rewarding financial results for both petitioner and his father. Decision will be entered for the petitioner. 1 All section references are to the Internal Revenue Code of 1954 unless otherwise indicated. 2 *** Generally speaking, if contingent compensation is paid pursuant to a free bargain between the employer and the individual made before the services are rendered, not influenced by any consideration on the part of the employer other than that of securing on fair and advantageous terms the services of the individual, it should be allowed as a deduction even though in the actual working out of the contract it may prove to be greater than the amount which would ordinarily be paid. (3) In any event the allowance for the compensation paid may not exceed what is reasonable under all the circumstances. It is, in general, just to assume that reasonable and true compensation is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances. The circumstances to be taken into consideration are those existing at the date when the contract for services was made, not those existing at the date when the contract is questioned. 2017 Thomson Reuters/Tax & Accounting. All Rights Reserved. Checkpoint Contents Federal Library Federal Source Materials Federal Tax Decisions Tax Court Reported Decisions Tax Court & Board of Tax Appeals Reported Decisions (Prior Years) 1968 50 RICHARD A. ALLEN, 50 TC 466, 06/24/1968 Tax Court & Board of Tax Appeals Reported Decisions RICHARD A. ALLEN, 50 TC 466 Richard A. Allen and Barbara Allen, Petitionersv. Commissioner of Internal Revenue, Respondent Case Information: [pg. 466] Code Sec(s): Docket: Docket Nos. 2503-66, 2504-66. Date Issued: 06/24/1968 Judge: Opinion by RAUM, J. Tax Year(s): Years 1961, 1962. Disposition: Decision for respondent. HEADNOTE 1. INCOME-Services of child. Portion of bonus for signing baseball contract by minor son paid directly to his mother was income to son. Amounts paid to mother were part of son's bonus and were received in respect of son's services. Reference(s): 1968 P-H Fed. 7861; 7464(5). 2. BUSINESS EXPENSES - Ordinary and necessary. Business expense deduction denied minor son for portion of bonus for signing baseball contract paid directly to his mother. Payment wasn't ordinary and necessary business expense. Reference(s): 1968 P-H Fed. 11,031. Syllabus Official Tax Court Syllabus 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, distinguished. Counsel Robert R. Batt, for the petitioners. B. David Freundlich, for the respondent. 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 method of accounting, with the district director of internal revenue, Pittsburgh, Pa. Barbara Allen is a party to this [pg. 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, and 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 herein 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 [pg. 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 signing 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 individual 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 with 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. [pg. 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 Baseball 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, transportation *** 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 [pg. 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 U NIFORM P LAYER C ONTRACT The Williamsport Base Ball Club, herein called the Club, a member of the Eastern League, and Richard Anthony Allen, herein called the player, 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 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 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 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 compensation 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. [pg. 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 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 Phillies 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 [pg. 472] petitioner's 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 of 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 Richard 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 RAUM, Judge: 1. Inclusion of Bonus in Petitioner's Gross Income.Petitioner was only 18 years old when the events giving rise to the [pg. 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 petitioner 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 includable 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 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 the 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 [pg. 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 signing 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 entitled to all of petitioner's earnings under Pennsylvania law. Pa. Stat. tit. 48, sec. 91 (1965). 3 [pg. 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, 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 *** obtain[ed] 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 tend[ed] to produce additional uncertainty with respect to the 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 compensated 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 [pg. 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 bonus 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 statute 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, 235, affirmed per curiam 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 mother 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 [pg. 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, 311 U.S. 112; Helvering v. Eubank, 281 U.S. 111, 114-115; Helvering v. Horst, 311 U.S. 122; Harrison v. Schaffner, 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 fact the argument that part of that amount was paid to his mother for her con