The statement that the need for a CWA (contemporaneous written acknowledgment) doesn’t exist because foreign entertainers present a W-9 from their U.S. Corporation or a W-8BEN from their foreign corporation is not entirely accurate. Here’s the detailed legal reasoning:
- Withholding Requirements:
- According to Treasury Regulation §1.1441-1(b)(2)(ii), if a withholding agent makes a payment to a U.S. corporation or other U.S. entity knowing or having reason to know that the entity is acting as an agent to collect funds on behalf of a nonresident alien, the payment must be treated as being made to the nonresident alien. This means the gross amount of the payment is subject to 30% withholding unless a CWA is in effect.
- Forms W-9 and W-8BEN:
- Form W-9 is used by U.S. persons (including U.S. corporations) to provide their taxpayer identification number (TIN) to the withholding agent. However, if the U.S. corporation is acting as an agent for a foreign entertainer, the withholding agent must treat the payment as made to the foreign person.
- Form W-8BEN is used by foreign persons (including foreign corporations) to claim beneficial owner status for U.S. tax withholding purposes. This form does not negate the requirement for withholding if the foreign person is performing services in the U.S.
- CWA (Contemporaneous Written Acknowledgment):
- A CWA is an agreement that allows nonresident alien athletes and entertainers to request a reduced rate of withholding. It designates a single withholding agent and allows the IRS to evaluate the income and estimated expenses to determine a potential net taxable income. This results in withholding that more closely relates to the ultimate tax liability.
- A CWA is only available for nonresident alien athletes or entertainers who are natural persons, not for foreign companies.
- Practical Implications:
- Even if foreign entertainers present a W-9 from their U.S. Corporation or a W-8BEN from their foreign corporation, the withholding agent must still consider whether the U.S. corporation is acting as an agent for the foreign entertainer. If so, the payment is subject to 30% withholding unless a CWA is in place.
- The presence of a W-9 or W-8BEN does not eliminate the need for a CWA if the withholding agent knows or has reason to know that the payment is ultimately for the benefit of a nonresident alien.
Therefore, the need for a CWA does exist if the withholding agent is aware that the U.S. corporation or foreign corporation is acting as an agent for the foreign entertainer. The withholding agent must ensure compliance with the withholding requirements, and a CWA can help reduce the withholding rate to more accurately reflect the entertainer's tax liability.
Sources:
Publication 519 (2023)
Publication 515 (2024)
Rev. Proc. 2017-21
