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.

New Form 8926 needed to compute deductible interest payable to foreign parent

If you have a loan from foreign parent, interest that can be deducted from US subsidiary’s income can be zero or limited under IRC 163(j).

IRS has a new Form 8926 this year that must be included along with the US subsidiary’s tax return.

Planning to attend a Convention in Panama? Rejoice! You are now in “North America” for travel expense deduction

IRS recently announced (IRB 2011-48) that Panama is now included in the North American region for the purposes of IRC 274 in order to claim the travel expenses for attending conventions. Until recently, in order to claim expenses related to travel for convention in Panama taxpayers had to meet special conditions.

IRS Publication 463 states that “You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. You cannot deduct the travel expenses for your family.”

It further states that “You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless:

  • The meeting is directly related to your trade or business, and
  • It is as reasonable to hold the meeting outside the North American area as in it.”

The North American area per IRS includes American Samoa, Antigua and Barbados, Aruba, Bahamas, Bermuda, Costa Rica, Canada, Dominican Republic, Honduras, Jamaica, Mexico, Puerto Rico and US Virgin Island to list only a few. The North American area also includes U.S. islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia.

Panama is included in the list now.