Posts Tagged ‘taxable income’

Never Rent Your Theater To Cannibals

Thursday, July 14th, 2016

By Brian Taylor Goldstein, Esq.   

Dear Law and Disorder:

We have a non-profit theater company with our own performance space. We are looking for additional ways to increase our revenue stream within the terms of the lease. Two questions: Can a non-profit collect revenue for rented space or must it take the form of a voluntary donation? Do you know off hand if there are tax implications?

Yes, you can definitely collect revenue for the rented space.  However, this is called Unrelated Business income (UBI) by the IRS, and it would constitute taxable income as it’s not related to you non-profit’s mission as a theater company—assuming, of course, that the missing statement filed with the IRS does not include running a catering hall. This might be different if you were renting the space to other non-profit organizations constituent with your own mission, such as local dance groups, community theater, theater camps, etc.

Regardless, I wouldn’t try calling the rent a “voluntary donation” to avoid the taxes.  It’s not voluntary if the lessee is required to pay it, and it’s not a donation if the lessee is receiving something of value in return for the money. Being entrepreneurial is admirable. Committing tax fraud is not.

In addition to considering the tax implications, you should also consider the liability and insurance implications as well. Regardless of who rents your space, should anyone be injured while on your property, your organization will be the one named in a lawsuit—especially if you will be renting it for any purpose that will involve children—the little darlings are pits of liability! While it’s a great idea to make any renters be responsible for any damages or claims, you need to require them to have insurance as well as obtain your own independent insurance. Making a renter contractually responsible does not mean they will actually pay.

Lastly, in additional crafting a well-drafted rental agreement (which means having terms that actually apply to your group, as opposed to borrowing a template from the strip club down the street that rents itself out for bachelor parties), you want to have specific written rules and guidelines as well as the ability to refuse to rent to any group or organization that you deem to be inappropriate—provided, of course, that such decisions are not made for discriminatory reasons. Just as people will blame your organization for any accidents or injuries that occur on your premises, people will associate you with tacit approval of any group or organization that rents your premises. So, hosting the North American Association of Cannibal’s Annual Banquet and Pot Luck may not be a wise idea.

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For additional information and resources on this and other GG_logo_for-facebooklegal, 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!

 

 

A Room With A View…and a 1099

Wednesday, July 24th, 2013

By Robyn Guilliams Dear Law and Disorder, I have been in artist management for a long time, thought I had seen it all, but something just came up for one of my artists that has me completely stumped.  My client was sent a 1099 for a hotel stay that the presenter provided for an engagement.   Most presenters that I work with pay for the hotels, but never once has the value of that hotel been included on the 1099 that the artist was sent.  This particular place is a big resort, they too are the presenter.  They often trade rooms for fees (it’s a very exclusive resort!), or they give small fees plus the accommodations (which includes meals), usually for two nights as a perk to the artist. It gets tricky for the artist, because they don’t pay for the hotel, so they have no expense to write off for that income. So that may mean they end up paying tax on that amount, thereby losing money doing this performance.  That’s where this goes wrong for the artist, in my opinion.  Artists obviously do this gig because of the resort.  But, this has left a bad taste.  What’s up with issuing the 1099?  They say it is an IRS law that says hotel costs are income for the artist.  By the way, they don’t tell you this up front…Searching for the Truth Dear Searching for the Truth: The answer to your question depends on the specific facts of the situation.  (A lawyer’s favorite answer to every question is – “It depends”!) Generally, if a presenter provides accommodations to an artist as part of the artist’s compensation, the value of the accommodations is NOT considered taxable income to the artist, if the accommodations are reasonable and necessary.  For instance, if an artist is travelling from California to New York to play one show, the presenter providing the artist with two nights of hotel accommodations is reasonable and necessary.  The value of the hotel accommodations in this instance would not be considered taxable income to the artist, and need not be included on the 1099. On the other hand, if a pianist travels away from home to play a concert and the presenter provides hotel and airfare for the pianist, her husband, her sister, her sister’s next-door neighbor, and the next-door neighbor’s pet monkey, this is not reasonable and necessary.  The value of the airfares and accommodations for everyone except the pianist would be considered taxable income and SHOULD be reported to the artist on a 1099. Unfortunately for your artist, there are a few comments in your letter that indicate that the accommodations at the resort exceeded the “reasonable and necessary” standard.  You state that the artists at this resort often accept accommodations in lieu of fees, or accept smaller fees plus accommodations.  Why would an artist accept no fee, or a substantially smaller fee, if the artist wasn’t receiving something of value (in addition to the hotel room) in return?  Plus, you mention that artists “do this gig because of the resort”… and the presenter provides “two nights as a perk to the artist”.  Again, the artist is receiving something of value besides the usual hotel accommodations.  If an artist is receiving a significant personal benefit from the accommodations besides a place to lay his head after the show (such as the opportunity to enjoy resort amenities or an extra night of accommodations), then the value of the accommodations constitutes taxable income and must be reported. You say that it’s tricky for the artist, because he has no expense to write off his income.  But wouldn’t this be the case if he was receiving his usual fee plus a regular, non-resort, hotel room?  I’d suggest that in the future, unless your artist understands the taxable “value” of receiving resort accommodations, including the included room service and use of the infinity pool, have him stay at the Motel 6 down the street. _________________________________________________________________ For additional information and resources on this and other legal and business issues for the performing arts, visit ggartslaw.com To ask your own question, write to lawanddisorder@musicalamerica.org. All questions on any topic related to legal 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. __________________________________________________________________ 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!