Every artist or entertainer wants an audience. Foreign artists and entertainers visiting the United States can be sure that at least one group of Americans is watching the success of their performances: agents of the Internal Revenue Service.

Like everyone earning income in the United States, nonresident foreign performers are subject to our nation’s income tax laws. But because these performers may literally be here today and gone tomorrow, the tax code requires withholding a hefty 30% of the gross revenue they earn in the USA.

For all but a handful of superstar bands, athletes and other entertainers, that would make performing in this country financially impossible. If they had to turn over 30% of the gross box office take, merchandise sales and other income, most nonresident entertainers and athletes wouldn’t have enough cash to cover expenses. They have to pay management and agency commissions, hotels, airfare, lighting, sound, crew and other costs immediately, not when the performer may get a tax refund months later (based on net taxable, and not gross income).

Fortunately, the IRS recognizes that the 30% withholding requirement is burdensome, and offers an alternative for nonresident foreign performers visiting the US to get a reduced rate of withholding: the Central Withholding Agreement or CWA.

Any agent, business manager, accountant or other professional working with nonresident foreign artists who want to perform in the USA should become familiar with this artist-friendly provision of the Treasury Regulations.

A CWA is a contract between the performer, his or her designated withholding agent (who must be an independent third party), and an authorized representative of the IRS.

The Central Withholding Agreement requires the preparation of a detailed estimate of income and expenses the nonresident foreign entertainer is expected to generate while performing here; that may be for a single event, such as a boxing match, or a series, such as a band’s multi-city tour. The IRS will allow withholding based on the taxable income projected in the CWA, which is likely to be at a rate substantially below the 30% that would otherwise be withheld.

The CWA is a virtual necessity for any nonresident foreign artist or athlete who will be performing in the United States. Since it is a binding contract with the Internal Revenue Service, it is hardly surprising that these agreements require scrupulous compliance with the rules that govern them.

Filing for a Central Withholding Agreement starts with the application, Form 13930. Typically this is completed by the performer’s agent, attorney or accountant, who must also submit a Power of Attorney and Declaration of Representative on Form 2848.

The application is accompanied by a detailed projected budget of income and expenses. After the performance or tour is over, the IRS will require the person who submitted the CWA to provide a "final accounting" meticulously documenting actual revenues and expenses. A band’s agent may have to account for details of T-shirt sales, and provide settlement statements for every venue.

The agent is required to pay the estimated tax obligation to the IRS as the income is received, submitting the payments electronically (the dates and amount of payments are recited in the CWA). Ultimately the performer or performers must submit their own tax returns to the IRS, and are responsible for any difference between the estimated amount covered by the withholding and their actual tax obligation.

The IRS requires that the application for a CWA be submitted at least 45 days before the first event or performance covered by the agreement. I always allow much more time, in case the IRS has a question about the projected income and expenses or some other wrinkle arises.

If the entertainer is part of a group – a band, for example – each member of the group must be covered by the CWA. Each nonresident foreign entertainer covered by a CWA must apply for and receive a U.S. social security number. For many this will be an unfamiliar process, and I’ve had bands arrive with one or more members who don’t have the tax ID number, requiring an immediate visit to the Social Security Administration.

If the performer has previously toured here, he or she should already have a number. But the IRS will use that number to see whether the performer has unfiled tax returns and/or unpaid taxes from prior years; if so, the performer will not be granted a CWA. That’s another problem I’ve had to clean up for touring bands.

America is an attractive destination for performers from around the world. Some of the countries from which they hail have tax treaties with the U.S. that provide reduced tax rates of taxation on income earned by foreign entertainers (some treaties even exempt specified - albeit modest - income levels from any U.S. tax).

It’s details like this that require painstaking attention to the process of applying for a Central Withholding Agreement. But the benefits – enabling nonresident foreign entertainers to perform before American audiences and expand their fan base here – make it worth the effort.

Michael R. Morris