NASHVILLE (Billboard) - U.S. touring revenue from international musicians appears to be on the taxman’s radar.
Rock ‘n’ roll accountant Bill Zysblat says it’s clear that Uncle Sam is watching.
“When the IRS finds an area that they believe is being abused or could yield more taxpayer dollars, they add manpower to it,” says Zysblat, a partner at RZO Productions and a leading authority on global touring accounting. “A few years ago, they concluded that athlete and entertainer taxes might be escaping their radar. So they reinstated a division to only deal with this area.”
In 2007, the IRS launched an “issue management team” aimed at improving U.S. tax payments by foreign athletes and entertainers working in the United States. The team’s initial focus has been professional tennis players, golfers and musicians because these “individuals and those associated with arranging their appearances in the U.S. and managing their financial affairs are typically high-income individuals,” the IRS says on its website. “Because of this, it is important to ensure proper tax reporting and payment.”
What prompted the IRS to think it was missing out on a piece of the action? In the case of music acts touring in the United States, the increasing prevalence of multirights artist deals appears to be a factor, Zysblat says.
Under multirights deals, it can be a tricky business ascribing the U.S. portion of an advance for an international multiyear agreement covering touring, merchandising and sometimes recording and publishing, he says.
International athletes and entertainers are subject to a 30 percent tax on gross income they earn in the United States and must enter a central withholding agreement (CWA) with the IRS and a designated withholding agent to cover specific tours or events. In these days of global tour promotion, where Live Nation or AEG Live sometimes control the entire box office of a tour, the IRS can often notify a single promoter to simply withhold 30 percent of whatever is paid to a band and turn it over to the government, Zysblat says.
Zysblat says the IRS has double taxation treaties with most industrialized nations that protect individuals from having to pay the IRS taxes on income generated in the United States if that income is already being taxed in their country of residence. But entertainers and athletes are treated differently and “are taxed in the U.S. on their personal service income, even if they pay tax in their own resident country,” Zysblat says.
While foreign acts are double-taxed initially, most countries allow their citizens to receive a tax credit against any U.S. income tax they pay, meaning that international artists playing in the United States usually come out even in the end, Zysblat says.
RZO acts as a withholding agent on behalf of its clients and negotiates CWAs with the IRS to minimize its clients’ tax exposure by reaching an agreement on which expenses (such as rehearsal and production costs) can be deducted before the IRS gets its share.
RZO pioneered the concept of independent tour production for foreign artists by contracting directly with U.S. promoters, negotiating and paying all of the tour expenses. “In that way, the artists’ gross was, in fact, the net of the tour, and the artists were then being withheld upon based on net and not gross,” Zysblat says.
It was an approach that helped RZO in the ‘70s and ‘80s to expand its international client roster, which included the Rolling Stones, David Bowie and Pink Floyd.
Foreign artists planning a U.S. tour should notify the IRS at least 30 days before they begin their tour and enter a CWA “in order to avoid an onerous withholding tax,” Zysblat says.
“Over the last several years, they have come down hard on artists who do not negotiate well in advance of their tours,” he says. “Many artists do not net 30 percent of the gross of a tour, so such a withholding can be crippling to cash flow.”
Tax planning is critical, as it’s not a stretch to assume that IRS watchdogs keep an eye on tour announcements.
“We are seeing a number of smaller artists who traditionally toured and possibly filed tax returns after year-end, now being approached in advance,” Zysblat says.
Even major touring artists are attracting the attention of the IRS, he says, noting that the agency “called us prior to the announcement of the current Sting tour, beating us to the punch for the first time.”