Thank you for participating in League webinars, phone forums, and sessions regarding the withholding procedures for foreign guest artists. The League will soon send an e-blast on this topic, but we wanted to make sure it landed in your inbox first!
We have recently obtained important clarification from the Internal Revenue Service (IRS) regarding expense payments for foreign guest artists. As you likely know, published and verbal guidance from the IRS has been confusing and contradictory on the question of whether expense reimbursements and payments made to third parties on behalf of foreign artists are subject to withholding. Previous guidance from the IRS – including guidance provided during League-hosted webinars and sessions this past summer – has indicated that these payments are subject to withholding. The newest word from the IRS, however, indicates otherwise.
Recent verbal guidance from the IRS confirms that expense payments for foreign artists working as independent contractors, made in accordance with the “accountable plan rules,” are exempt from withholding. This verbal guidance is now consistent with guidance posted on the IRS web site.
The League is very appreciative of the insights provided to us by orchestras that have been working to sort out the conflicting messages issued by the IRS. With counsel from attorney Robyn Guilliams, of Fettman, Tolchin, and Majors, P.C., author of the tax portion of the Artists from Abroad web site, we have posted updated guidance online to reflect the latest news from the IRS: http://www.artistsfromabroad.org/taxes/payment_withhold.html
Also, please note that we have posted a complete FAQ on a broad range of tax questions, here: http://www.artistsfromabroad.org/taxes/faqs.html
Further information is also available below:
Details on Accountable Plan Rules
In effect, an expense reimbursement made to a foreign artist is not reportable as income – and is not subject to 30% withholding – if the reimbursement meets these three requirements:
1. The payee must establish the business purpose and connection of the expenses;
2. The payee must substantiate the expenses claimed to the payer within a reasonable period of time; and
3. The payee must return any amounts to the payer which are over and above the substantiated business expenses within a reasonable period of time.
The accountable plan rules also apply to expenses paid to third parties on the artist’s behalf (e.g., hotel accommodations and/or travel paid for or provided by a presenter).
Note that the rules do NOT apply to a flat expense reimbursement paid to an artist who does not provide documentation for the full amount of the reimbursement. In those cases, the payer must withhold.
For a more detailed explanation of the accountable plan rules, see Treasury regulation 26 C.F.R. 1.62.2
Awaiting Clarity on 1042-S Reporting
One question that remains unresolved is whether or not an orchestra, or other U.S. payer, is required to report the expenses that were paid or reimbursed to the artist under the accountable plan rules and, if the orchestra is required to do so, how this information is to be reported. Pursuant to the accountable plan rules, the expenses are not reportable as gross income. However, under many tax treaties, the expenses are counted toward gross income. For example, Article 16 of the tax treaty between the United States and the United Kingdom states that income “may be taxed in that other State, except where the amount of the gross receipts derived by that resident, including expenses reimbursed to him or borne on his behalf, from such activities does not exceed twenty thousand United States dollars ($20,000)…” (emphasis added).
The IRS has indicated that it requires some way of tracking an artist’s expense payments, even if the accountable plan rules apply.
Currently, there is no obvious location on the 1042-S to report non-taxable expense reimbursements to foreign artists, nor has there been any clear instruction from the IRS to date on how to report expense payments under the accountable plan rules. However, the League is working together with Fettman, Tolchin, and Majors, in an attempt to resolve this issue with the IRS before the end of the tax year, so that we may provide guidance in preparing 1042-S forms in early 2009.
We are grateful to attorney Robyn Guilliams for her continued guidance in this area, and will keep you posted as we learn more. In the meantime, please feel welcome to contact me with any related questions.
Heather Noonan
Vice President for Advocacy
League of American Orchestras
910 17th Street, NW, Suite 800, Washington, DC 20006
t 202 776 0215 f 202 776 0224
hnoonan(AT)americanorchestras(DOT)org
americanorchestras.org
League of American Orchestras
Engaging . Sustaining . Transforming
Please update your address book with my new email and our new website
NAPAMA is comprised of a diverse group of managers, agents, self-managed artists, affiliated business vendors, and presenters – all industry colleagues in the field of the live performing arts. Our shared goal is to maintain a healthy and productive business environment for all. NAPAMA actively develops timely professional education sessions presented at industry convenings. We monitor, investigate, and report back to our membership on the ever-changing landscape of taxes, immigration, licensing, insurance, and contract law. Representing the unique perspective of the artist manager, we serve on industry boards, advisory committees, program committees, and showcasing committees throughout the field. We were the first in the industry to create a standard with our Ethical Guidelines. Discounted legal services are available through your membership with NAPAMA’s Legal Affairs Advisor Brian Goldstein of FTM Arts Law. Steered by an all-volunteer board, we are here to offer guidance, support, and assistance whenever possible. If you aren’t already member, I do hope you will consider joining this important network of colleagues to access a wealth of information and knowledge.