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Thursday, December 13, 2012

Foreign Music Acts and U.S. Taxation

Aninda Dhar (EisnerAmper, New York), Foreign Music Acts and United States Taxation:

On February 7, 1964, the Beatles landed in New York City, signaling the beginning of the “British Invasion.” Waves of the Invasion produced numerous foreign musical acts, such as The Rolling Stones, Herman’s Hermits, and The Kinks. While some of these acts have faded as music tastes have evolved and diverged dramatically, several foreign musical acts have continued to earn significant income in America. For example, in 2006, veteran British rockers, The Rolling Stones, were the top grossing touring act in America.

In response to the significant portion of United States tour revenues attributed to foreign musical acts, the Internal Revenue Service (“IRS”) recently announced that it would closely scrutinize foreign entertainers. Specifically, the IRS has introduced a compliance initiative targeting foreign entertainers and athletes who earn income in the United States. This effort by the IRS includes the establishment of “an issue management team . . . assembled to improve U.S. income reporting and tax payment compliance by foreign stars.” The new management team’s primary objective will be to determine the nature of guidance and the level of outreach necessary to train IRS personnel in identifying compliance issues.

While the IRS’s new initiative is geared toward “stars” who have achieved a certain level of international success, such as U2, this note will provide an overview of some United States tax issues that concern foreign entertainers of varying levels of fame, including those performing in small venues as well as those performing in major arenas. The note begins by briefly examining the United States statutory framework. It then analyzes United States treaties pertaining to foreign musical acts, and concludes by exploring certain specific tax concerns for foreign performers.

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