IRS planning more enforcements for NRA athletes, entertainers and foreign government employees

Nonresident alien (NRA) athletes and entertainers performing independent personal services or participating in the U.S. and embassy and consulate employees in the U.S. can expect more enforcement and litigation, an IRS official said May 12.

Speaking at the American Bar Association Tax Section meeting in Washington, Lindsey D. Stellwagen, Special Counsel International, Office of Chief Counsel said that although there had been a lot of publicity on IRS measures to enforce compliance on U.S. persons  with offshore wealth, her agency is also stepping up enforcement of NRAs and resident aliens (e.g. green card holders) that owe U.S. tax. She discussed the IRS programs pertaining to athletes and entertainers and the embassy project.

Foreign athletes and entertainers may pose a challenge to IRS enforcement because they come into the U.S. for a brief period of time, earn a lot of money, then leave. Such persons may be able to evade paying tax on  their U.S.-source income and enforcement may be futile if they money earned has exited the U.S. without the imposition of withholding at source.

Nonresident alien entertainers or athletes performing independent personal services or participating in athletic events in the U.S. are generally subject to a 30 percent withholding on gross income. Stellwagen explained that under the central withholding  agreement (CWA) program, such persons may be subject to reduced withholding provided that certain requirements are satisfied. The agreement is entered into by the NRA athlete or entertainer, a withholding agent and the IRS and is valid for a specific tour  or series of events. Withholding is based upon the budget provided and estimated net profits.

CPA Global Tax & Accounting PLLC can assist athletes and entertainers with the CWA program and work with the IRS to minimize the exposures.

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Can Non Resident Aliens claim foreign tax credit in U.S.?

Generally if you are a US taxpayer and have foreign source income on which you paid taxes in foreign country, you can claim credit for such taxes in US. However, rules are not the same for the NRAs. Many times it is seen that the NRAs have to report their income both in US as well as in their home country. Generally, due to the foreign tax credit provisions, the same income is not taxed twice. However, NRAs and tax professionals need to be careful while claiming credit in US and examine if US source income is also taxed in their home country. In such cases, the credit cannot be claimed in US due to the fact that the corresponding income is US source income and not foreign source income.

IRS Publication 514 released on January 27, 2011, makes this point amply clear. Taxpayers and professionals should pay attention to this and many other requirements before correctly filling out Form 1116.

UK tax law likely to scare away Tiger Woods and other sports folks – “The Independent” reports

 Tiger Woods’ reluctance to accept a Ryder Cup wild card may in part be due to a £1m tax bill he could face for playing in the event, which pays no prize money. Aside from any sporting price his team-mates might face because of his wretched form, the issue highlights a problem that is causing concern for many British sporting events. 

Sportsmen and women who earn money in the UK while not resident have been targeted by HMRC after it won a high-profile case against Andre Agassi four years ago. The implications are now being felt. Previously HM Revenue & Customs had only gone after a portion of “active income”, earnings from prize money or appearance fees. But the so-called “passive income” – mainly from endorsements – was not deemed liable for UK tax. Now attempts are made to claim tax not just on a foreign sportsperson’s direct earnings on British soil (for example, prize money) but also on a proportion of the sportsperson’s |global endorsement earnings. The Independent understands that leading players have voiced their concerns to the European Tour, the organisers of the Ryder Cup, and a Tour spokesman last night confirmed that they are in “discussions” with HMRC. HMRC told The Independent yesterday that Woods and the other players would still probably be liable on their equipment sponsorships. 

“Product endorsements that are directly connected to the sportsperson’s performances are subject to UK tax,” explained an HMRC spokesperson. “Though full UK expenses arising from the performance can be claimed against the income chargeable to UK tax.” 

Woods’ deal with Nike is rumoured to pay $40m a year. So if he played 14 events this year, and one of those is the Ryder Cup, he would be billed to pay tax, at 50 per cent, on one-fourteenth of that amount, leaving the potential tax bill as high as £900,000. The taxman would no doubt also be interested in the reported $10m he receives from EA Sports, for whom his name and images appear in a computer game based on the Ryder Cup.