By Robyn Guilliams, Esq.
Dear Law & Disorder,
I am a member of a band in Canada, and we do quite a few performances in the U.S. each year. Our accountant has always told us that we don’t need to file income tax returns in the U.S., because the band is incorporated, and also because our U.S. fees are exempt from tax in the U.S. under the U.S. / Canada tax treaty. We haven’t had any problems for the past four years, but now the IRS is contacting each of the venues for our U.S. shows, and telling them that they have to withhold tax of 30% of our gross. The IRS also says that each band member must file individual U.S. tax returns for the past seven years, AND that our corporation doesn’t shield us from U.S. taxes. Help! Our Canadian accountant claims that he is an expert regarding U.S. taxes, but I’m worried he might not be.
Oh dear – I’m sorry to hear about your tax mess. It certainly sounds as if your Canadian accountant is no expert! I’m afraid I hear this sort of story quite often. Many of our clients have come to us after a so-called “expert” handled their U.S. taxes (or visas) and got them into a world of trouble with the IRS (or USCIS).
The IRS is correct in telling you that any nonresident individual who works in the U.S. must file an individual U.S. tax return. (There are a few VERY LIMITED exceptions to this rule, but none apply here.) You may owe no tax. Perhaps your net income was below a certain limit (or sadly, nonexistent), or perhaps you qualify for an exemption from U.S. tax under the U.S. tax treaty with Canada. Still – you must file a return to report your income! After a certain amount of time, you lose the right to deduct your expenses (i.e., you’ll be taxed on your gross income), and you’ll lose your right to claim a tax treaty exemption.
U.S. tax laws and regulations are extremely complex, especially concerning taxation of nonresidents. As an example, this regulation is just one of many concerning nonresident tax withholding. Welcome to my world!
A knowledgeable tax advisor can help an individual to reduce his or her tax liability, which may save a performer or group a substantial amount in U.S. taxes. On the other hand, an incorrectly prepared return can trigger an IRS audit! At the moment, I’m working with five – FIVE – nonresident clients who are being audited. In each case, the return was prepared a self-professed “expert”, and it included numerous errors, including mischaracterizations of income and/or expenses, claiming exemptions or deductions to which my client was not entitled, and failing to include required schedules and attachments.
Here are a few helpful hints for those in search of assistance in preparing a U.S. nonresident (or any other) return:
- Check out the IRS’s “Tax Tip” on choosing a preparer at https://www.irs.gov/uac/Choose-Your-Tax-Preparer-Wisely.
- Before hiring any tax preparer, check his or her credentials on the IRS website at http://irs.treasury.gov/rpo/rpo.jsf.
- Be aware that, by law, anyone who receives payment to prepare a tax return is required to obtain a Preparer Tax Identification Number (PTIN) from the IRS, and to sign and include their PTIN on all client returns. A PTIN always begins with “P” and is followed by eight numerical digits. If your preparer does not have a PTIN – run away!
I hope this is helpful to you!
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For additional information and resources on this and other
legal, project management, and business issues for the performing arts, visit ggartslaw.com
To ask your own question, write to lawanddisorder@musicalamerica.com
All questions on any topic related to legal, management, and business issues will be welcome. However, please post only general questions or hypotheticals. GG Arts Law reserves the right to alter, edit or, amend questions to focus on specific issues or to avoid names, circumstances, or any information that could be used to identify or embarrass a specific individual or organization. All questions will be posted anonymously and/or posthumously.
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THE OFFICIAL DISCLAIMER:
THIS IS NOT LEGAL ADVICE!
The purpose of this blog is to provide general advice and guidance, not legal advice. Please consult with an attorney familiar with your specific circumstances, facts, challenges, medications, psychiatric disorders, past-lives, karmic debt, and anything else that may impact your situation before drawing any conclusions, deciding upon a course of action, sending a nasty email, filing a lawsuit, or doing anything rash!
