TAX PLANNING FOR TRAVELING ATHLETES, ARTISTS, AND ENTERTAINERS

Whenever a well-known KBO League star is signed to a deal with an MLB team, or a K-pop group announces a new tour in the States, most Korean Americans are either simply happy to hear the news or, at most, they begin researching how to get a ticket for an upcoming game or concert.  As a tax attorney, however, these announcements generally result in me mechanically checking on rarely advertised, and infrequently considered, facts and circumstances associated with such news, including the Korean-born athlete or singer’s nationality, tax residence, number of days and/or stays in the U.S. for the game or tour, relationship with an agent, and the agent’s presence in the U.S.  All of these various facts and circumstances, as well as some additional select details, will indicate and dictate how an athlete and performer will be taxed while working and performing in the States.

As of today, the United States has entered into tax treaties (“Tax Treaties”) with 68 different countries around the world.  In certain instances, these Tax Treaties provide international entertainers, artists, and athletes with special exemptions from the imposition of U.S. income tax earned while in the States.  Artists and entertainers from most Eastern European countries, for example, are wholly exempt from U.S. federal income tax earned in the States so long as the artist or entertainer satisfies certain requirements set out in a Tax Treaty with the artist’s or entertainer’s country of residence.  

Entertainers, artists, and athletes from most other countries, however, are not as fortunate as their Eastern European counterparts.  In the majority of Tax Treaties, the United States actually caps the amount of income able to be exempted from U.S. federal income tax by providing a limited exemption from federal income tax generally in the range of $3,000 to $20,000.  If earned income from a foreign entertainer, artist, or athlete exceeds the $3,000 to $20,000 threshold prescribed in the Tax Treaty, even by a single dollar, then the entire amount of U.S. source income, generally, will be subject to U.S. federal income tax and, in most cases, state level income tax as well.  

Unfortunately, the U.S. - Republic of Korea Income Tax Treaty happens to be one of least advantageous Tax Treaties, from the viewpoint of the U.S. counterpart and specifically with regards to income earned by entertainers, artists, or athletes, among all 68 Tax Treaties.  (See U.S. - Republic of Korea Income Tax Convention, Article 18).  In order to avoid becoming subject to maximum U.S. withholding and income tax requirements, however, Korean-resident entertainers, artists, and athletes can proactively plan by: (i) reviewing, and revising when necessary, their relationships with their agents; (ii) taking active steps to establish proper expense and reimbursement plans in accordance with U.S. tax rules; and (iii) only choosing, and applying for, optimal and beneficial Visa programs.  In order to address these concerns in the most advantageous way possible, foreign celebrities, athletes, artists, and entertainers should, preferably, begin planning with U.S. and foreign counsel well-before signing a final tour, concert, or big league contract or agreement.