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Taxation of Athletes, Artists, and Entertainers Taxation of Athletes, Artists, and Entertainers Presented by: Jeffrey Schneider Clear Law Institute | 4601 N. Fairfax Dr., Ste 1200 | Arlington | VA | 22203 www.clearlawinstitute.com Questions? Please call us at 703-372-0550 or email us at [email protected] All-Access Membership Program ● Earn continuing education credit (CLE, CPE, SHRM, HRCI, etc.) in all states at no additional cost ● Access courses on a computer, tablet, or smartphone ● Access more than 75 live webinars each month ● Access more than 750 on-demand courses Register within 7 days after the webinar using promo code “7member” to receive a $200 discount off the $799 base price. Learn more and register here: http://clearlawinstitute.com/member Clear Law Institute, © 2018 . Income Specific to Athletes, Entertainers and Artists . Deductions – Some general, some specific to Athletes, Entertainers and Artists . TCJA Issues . Loan Out Corporations . US Taxation on Non-Residents . Royalty Income Presented on Behalf of . Sale of Artworks . Foreign Taxation of US Resident Artists, Clear Law Institute Entertainers and Athletes . Multi- State Tax Issues and the Jock Tax By Jeffrey A. Schneider, EA, CTRS, NTPI . More TCJA Considerations www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 . Compensation for Services Rendered “Income means all . Fees . Contingent Compensation income from . Profit Participations . Residuals whatever source . Royalties . Bonuses derived” . Self-Created Works/Copyrights . Prizes www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 Agreements in the Entertainment Industry . Certain “A Listers” get a percentage of the . Actors receive compensation for personal gross / net / profits services . Paid only when something happens . Directors, as “consideration for services”, . Profits in profit participation clauses are receive compensation not the same as profits for accounting or tax §61(a)(1) – specifically mentions compensation for services and fees . Profits, if any, are specifically outlined in the agreements www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 . Unlike profit participation, these are written in the . Not specifically mentioned in §61(a)(1) Collective Bargaining Agreements between the . Congress gave the US Treasury broad studios, the unions, Screen Actors Guild (SAG- AFTRA) and Directors Guild of America (DGA) powers to enact regulations . What is it? . Treasury Regulation 1.361-2(a)(1) – . Payments over & above compensation “Compensation on the basis of a . “Due” after initial release of show/movie percentage of the profits ... is income to . Not based on profits (see DGA website) the recipients. Ex: 60% of gross receipts that covers fees BUT ONLY WHEN RECEIVED and other expenses) www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 . Athletes do not have profit participation (most sports teams claim that they are not Visual Artists, Authors, Recording profitable), but they get bonuses Artists & Songwriters .Paid when their works are sold . To make sure that there is no confusion, or used with §61(a)(1), Reg §1.61-2 includes “bonuses” ... “including Christmas .Not for personal services bonuses” www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 Book Author Agreements Recording Artists’ Agreements Generally, based on US hardback sales* Generally, based on a percentage of units 1) 10% of suggested retail on 1st 5,000 sold or licensing fees the record company * 2) 12.5% on next 5,000 receives for the use of the record 3) 15% on next 10,000 4) Digital, paperbacks, international paid at different percentages * Author Publisher Hardcover Trade Book Contract **Exclusive Recording Artist Agreement Entertainment Industry Contract 41-1 Entertainment Industry Contract 159-1 www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 Songwriters’ Agreements Bonuses vs. Royalties Generally, 50% of the amount that the Bonuses are specific in what is being paid publisher receives for those songs that are (i.e., actors, directors, pro athletes, etc.). * recorded used in a movie or TV Show Royalties do not specify amounts, just how Also receives royalties for public the royalty is based performances directly from “performance rights organizations (ASCAP, BMI, SESAC) §61(a)(6) specifically mentions Royalties ** Single Song Agreement Enertainment Industry Contract 169-1 www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 Not Royalties per §61(a)(6) §61(a)(2) – Gross Income Derived Though it is income per §61(a)(1) from Business §61(a)(2) – Gross Income Derived from Business Requires that the ENTIRE sales §61(a)(3) – Gains derived from the dealings in price is included, then deducts Property (not in the business) expenses as Cost of Goods (Schedule C) www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 . Tournament Competitors receive prizes §61(a)(3) – Gains derived from the versus compensation, royalties, etc. dealings in Property . Tennis players and golfers receive Requires GAINS is included prizes as their main source of income Not in the business (Hobby)? . Authors (Nobel Award) or other team athletes receive prizes (i.e., car for MVP Deductions may be limited award), but it is not their main source of income www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 • the prizewinner didn’t do anything to General Rule - §74(a) – All prizes enter the contest • the prizewinner doesn’t have to provide and awards are income unless any services in the future exempt • the prizewinner designates a charity or government to receive the prize • the prize is given to that organization or government. www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 Nobel winners MVP Winners Automatically qualifies under the first Even if they designate a charity and that two exceptions charity receives the award – the award is But have to designate a charity and that income to the winner. Does not pass the charity has to directly receive the award first two criteria As such, not income to the Hornung v. Commissioner winner 47 T.C. 428 (1967) www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 Hornung v. Commissioner Hornung v. Commissioner 47 T.C. 428 (1967) USTC Ruling “We feel confident that Congress has no Paul Hornung Football Hall of Famer – Green Bay Packers of the 60’s intention of allowing professional football to An educational event because football was constitute a type of activity for which proficiency taught in college could be recognized with an exempt award An artistic achievement because being a under section 74(b). Professional football cannot football star calls for “degree in artistry” be viewed as an “educational”, “artistic,” a scientific achievement as there is “some “scientific,” or “civic” field or endeavor as those degree of science” in what they do terms are used in the statute no matter how A civic achievement because he needed a fond of the sport we may be. The crucial leave from the army and the President expressed interest he get it (he did) question for qualification under section 74(b) is the nature of the activity awarded.” www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 Wills vs Commissioner – 9th Circuit 1969 Maury Wills, LA Dodger Infielder of the 60’s Starting with the 2018 Summer Olympics, Same result with Judicial reservations Olympic Awards will not If Congress wants to tax awards, “the next step would be for the Internal Revenue Service to be taxable* tax the gold and silver medals awarded to Olympic Games’ winners.” *If they earn <$1million annually BUT THEY DO! www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 True Gifts – Elizabeth Taylor Jewelry from Not Income prior to 2006 Richard Burton Disguised Income – In audit settlement, IRS and Academy of James Cameron gave eleven Motion Picture Arts and Sciences agreed $30,000 Priuses to Cast of Avatar. that for 2006 forward, 1099s will be Adam Sandler gave four $200,000 issued for value of awards. However, the Maseratis to cast of Grown-Ups Academy stopped giving baskets to Oprah now pays the tax presenters. Why is it income? It is a thank (more income) so the audience is you for presenting. Presenting is a made whole service, thus income under IRC §61(a). www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 Is it income to the donor? Treasury Regulation §1.61-2(c) in applying the ruling in Lucas vs. Earl Lucas vs. Earl – US SC (1930) – the right to Where, however, pursuant to an receive income for personal services cannot agreement or understanding, services are rendered to a person for the be assigned, not even before its earned. benefit of a charitable organization Thus it is income even if assigned. and an amount for such is paid to such organization by the person to whom the services are rendered, the amount so paid constitutes income performing the services. www.ClearLawInstitute.com (703) 372-0550 Clear Law Institute, © 2018 . If income, is their donation a Caveat – EMPLOYEES, not ICs corresponding Schedule A deduction? Commonly reimbursed in the entertainment . RR 65-503 says that entertainer did not industry as employer requires them to do so participate in the planning, promoting SAG CBA requires producers to pay actors a or scheduling of an event he “worked”, per diem allowance for meal & overnight did not have to include the admission fees lodging & commercial travel into income st . This is the big distinction whether or not
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