Features
When Touring Gets Taxing
When it comes to paying taxes, everyone’s got it tough. But consider the plight of the international touring artist who, under strict Internal Revenue Service code guidelines, gets 30 percent lopped right off the gross for every performance in the United States.
Of course, much of it often comes back to the artist as a hefty refund once a return is filed and deductions taken, but even the IRS recognizes the burden and has taken a “kinder, gentler” approach to working with international performers, as well as athletes, according to IRS tax specialist Sam Froio. Kinder? Gentler? IRS?
Under the circumstances, yes. The IRS is promoting a provision that was put into the tax code back in the ’80s called the Central Withholding Agreement. According to Froio, it hasn’t been used much in the past, but he hopes artists and their representatives will take advantage of its provisions once they know more about it.
Under IRS code, a “non-resident alien” performer must have 30 percent of the gross revenue from each and every show taken right off the top by either the venue or the artist’s withholding agent (or a responsible tour accountant). That doesn’t take into consideration the expenses that come out of his or her guarantee on top of the 30 percent.
However, with a Central Withholding Agreement, the artist provides the IRS with a sample budget, itinerary, and other information that helps establish an estimate of deductible expenses in advance of a tour, which is often far less than that arbitrary 30 percent.
“After a review of the entertainer’s projected income and expense, we consider Central Withholding Agreements on net tour income rather than gross income,” Froio explained to Pollstar. “When we’re given a budget, we’ll do a little mini-1040NR (the tax return for non-resident aliens) and we’ll give them the deductions for their expenses. We can greatly reduce the amount of the withholding.
“It never reduces the tax, but it reduces the amount of the withholding – and that is very important when they go back to their country with more money and a better outlook on their experience here touring the U.S.,” Froio said. He offered an example: “A non-resident entertainer signs a contract to perform a tour in the United States with a guarantee of $1 million. He or she has expenses for a manager, crew, lodging, food and so on of $400,000.
“So, it appears the entertainer has a net of $600,000, but that would be wrong unless he’s got a Central Withholding Agreement. Based on the regulation requiring 30 percent withholding from the gross, what he’ll collect is $1 million, minus $300,000 in tax withholding, minus $400,000 in expenses for a net of $300,000.” Ouch.
It’s a significant difference for the artist as well his American reps and the venue, which is responsible for cutting that IRS check. Getting a CWA is especially advantageous to smaller or emerging artists, according to Froio, who have much thinner profit margins and for whom a 30 percent loss off the top could be the difference between doing a tour and canceling one.
While it may not be an issue for
“We have become familiar with a lot of touring musicians who are brand new and they don’t make a profit,” Froio explained. “They’re doing it for the experience, for the publicity, period. The 30 percent rule in the tax code creates a tremendous hardship for them.
“The lower rate of withholding is intended to more accurately reflect the nonresident alien’s anticipated tax liability, which may be zero.”
Froio recommends that the artist’s representative or withholding agent, who is responsible for making sure the IRS gets its cut, begins the process of securing a CWA at least 90 days out from the start of a U.S. tour.
“We do it for the whole tour,” Froio explained. “It’s a legal document between the IRS, the withholding agent, which may be an attorney or somebody who is a U.S. citizen who will be responsible for the withholding, and the nonresident alien entertainer.
“The artist has to sign it, too. A lot of bigger artists, who have their own corporations, do it because it’s a good idea for asset protection and they have a tax person who handles that for them. Often, they get in touch with us themselves.”
More information about the Central Withholding Agreement program can be found on the Web in the International section of the IRS Web site at IRS.gov or by e-mailing a request to [email protected]. Froio can be reached by phone at 904-665-0776.
In this case, it doesn’t pay to be intimidated by the Taxman. He’s just like you and me, Froio insists.
“We talk to big-name promoters sometimes. When I did my first CWA with an extremely high-profile entertainer, I was shaking in my boots!” Froio said, laughing. “But it was a win-win because they had a situation where they made something like 15 stops … and we were able to work with them and greatly reduce their withholding.”
– Deborah Speer