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The Tax Prophet Newsletter   Issue # 42 October, 2006

REDUCE TAXES!
CHECK OUT THE TAX PROPHET'S Action Guides


In This Issue:
Introduction
Tax Rates
Resistance
CWA


IRS Crackdown on Obscure
International Entertainers

Introduction

Think your favorite obscure foreign underground band escapes the tax collector's clutches, think again! In Las Vegas, Nevada, there lurkes IRS agent Cecile Glunt, foraging through trade magazines and Googling bands to discover U.S. concerts performed by foreign entertainers.

If the band appears on a venue's calendar or posts tour dates on the Web, it can expect a call from Cecile's unit.

Tax Rates

Entertainers and athletes working within the U.S. are taxed a flat 30% on their gross income (or a higher amount under an applicable tax treaty) unless they file U.S. tax returns.

These taxpayers should consider a "Central Withholding Agreement" (CWA) with IRS. That way, these taxpayer pay taxes on net gains (income after expenses) and tax withholding by the promoter is based on the CWA calculation of net gains.

Note: An exception exists for the first $3,000 of gross income, provided the individual is present in the U.S. for less than 90 days during the year.

By filing tax returns (Form 1040 NR) and entering into a CWA with IRS, these taxpayers are taxed on their net income and could receive a refund if their actual taxes are less than the amounts withheld.


Resistance

Naturally, if an underground rock band were sophisticated when it came to taxes, it probably would not have "underground" status to begin with. According to Andy Ross, the manager of British band, Psapp, "[CWA] seems like it's totally set up so that it's so confusing, you just give them 30 percent."

While touring the U.S., Psapp lost about $30,000, however, Ross says accounting fees paid to comply with U.S. tax laws would greatly outweigh a payment of 30% on gross income. IRS's Glunt counters that as more bands understand about a CWA, they will contact IRS earlier and lower their accounting costs.


CWA

Under a CWA, projected income is reduced by reasonable estimated U.S. expenses to arrive at net income subject to withholding. The athlete or entertainer must be a nonresident alien holding a P visa (P-1, P-2, P-3, or P-4).

The promoter (or agent) withholds tax at regular graduated rates on net income, which should result in substantial savings. A request for a CWA should be sent to IRS at least 90 days before the agreement is to take effect. For more information, contact IRS at CWA Program. See also Rev. Proc. 89-47



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All contents copyright 1995-2006 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet is a registered trademark of Robert L. Sommers.