Rev. Rul. 55-727

Advice has been requested concerning the Federal income tax treatment of bonus payments made to a professional baseball player.

The taxpayer, a professional baseball player, entered into a one-year contract with a baseball club in which he agreed to render services as a ballplayer during the 1953 training season, playing season, exhibition games, and the World Series or any other official series in which the club might participate. Taxpayer further agreed that, while under the contract and before the expiration of the club's right to renew the contract, he would not play baseball otherwise than for the club, except in post-season games under conditions prescribed in the major league rules. In addition to specified compensation for the season, the contract provided for a bonus to the player or his estate, payable one-half in January, 1954, and one-half in January, 1955, regardless of whether or not he was able for any reason to render services. During the latter half of the 1953 season, the taxpayer entered the Armed Forces of the United States and was unable to render any services to the club.

The payments to the taxpayer under the contract were for his promise to perform services, whether or not actually rendered to the club, and for the taxpayer's not exercising his privilege of playing for another baseball club.

In the case of Estate of John D. Beals, et al. v. Commissioner , 82 Fed.(2d) 268, Ct. D. 1140, C.B. XV-2, 227 (1936), the court stated:

`A promise not to work for others or for one's self is no more a conveyance of property than is a promise to enter the promisee's employ. Payment for either promise is income, not proceeds received on disposal of a capital asset.'

Accordingly, it is held that bonus payments received under a contract by a professional baseball player for professional services to a club, whether or not performed, and for refraining from playing for any other baseball club during the period of the contract, even though the player entered the Armed Forces of the United States and performed no services under the contract, are taxable to him as ordinary income for the taxable year in which received.

Bonus payments received by any other individuals under circumstances similar to those in this Revenue Ruling would likewise be taxable as ordinary income to such individuals in the taxable year in which received