U.S. Taxation of Foreign Entertainers, Athletes, and Artists

• Author: Lionel S. Sobel
• Pages: 259-304

259

CHAPTER 10

U.S. Taxation of Foreign

Entertainers, Athletes, and Artists

IRS Classification of Taxpayers

U.S. Citizens

Resident Aliens

“Green Card” Holders

“Tax Residents”

The Statutory Formula

Exemption and Exceptions from the Statutory Formula

Charity Sports Event Exemption

Closer Connection Exception

Treaty Exception

Nonresident Aliens

U.S. Taxation of Personal Service Income of Nonresident Aliens

Personal Service Income versus Royalties

Income Source

Foreign-Source Income

U.S.-Source Income

Mixed Foreign- and U.S.-Source Income

Taxation of U.S.-Source Personal Service Income

Taxable Income and Rates

Withholding

Income Tax

Employee versus Self-Employed

Central Withholding Agreements

Social Security and Medicare

Exemptions

Statutory

Treaty

U.S. Taxation of Royalty Income of Nonresident Aliens

Royalties versus Personal Service Income

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260 CHAPTER 10

Income Source

U.S.-Source Royalties

Foreign-Source Royalties

Mixed Foreign- and U.S.-Source Royalties

Taxation of U.S.-Source Royalty Income

“Effectively Connected” Royalties versus “Not Connected” Royalties

Taxable Income and Rates

Withholding

Income Tax

Not Effectively Connected Royalties

Effectively Connected Royalties

Social Security and Medicare

Exemptions

U.S. Taxation of Income from the Sale of Artworks

by Nonresident Aliens

Income Source

Taxable Income

Withholding

Use of Loan-Out Corporations in the United States

by Nonresident Aliens

Using Loan-Outs to Claim Exemption from U.S. Income Tax,

by Treaty

Using Loan-Outs to Claim Exemption from U.S. Income Tax,

under the Internal Revenue Code Itself

Using Loan-Outs to Avoid Tax Withholding

Using Loan-Outs for Same Reasons Loan-Outs Are Used

by U.S. Citizens and Resident Aliens

IRS Position on Use of Loan-Outs by Nonresident Aliens

Domestic Loan-Outs

Foreign Loan-Outs

In this chapter, we’ll look at when and how the United States taxes

foreign entertainers. The subject gets a little intricate, because there

are different types of foreigners, there are different types income,

and foreign entertainers earn income in different places. The chart on

page 262 visually illustrates these differences. It will (I hope) help you

untangle (and keep untangled) the many separate strands of analysis

that these differences require.

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U.S. Taxation of Foreign Entertainers, Athletes, and Artists 261

IRS Classification of Taxpayers

The Internal Revenue Code classifies taxpayers into three categories:

• U.S. citizens

• resident aliens

• nonresident aliens

Getting the classification right is important, because the United

States taxes citizens and resident aliens on the income they earn

worldwide but taxes nonresident aliens only on the income they earn

in the United States.

U.S. Citizens

U.S. citizens are those who are born in the United States and those

who were born abroad but become naturalized citizens.1

Resident Aliens

Foreign entertainers can become “resident aliens” in a couple of

quite different ways. One of these ways is not at all obvious and can

happen by accident. So the technical definition of “resident alien” is

important.

1. U.S. C. amend. XIV, cl. 1.

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