In most situations the general rule that arts organizations should withhold 30 percent from payments to foreign artists and remit such amounts to the IRS will apply. However, the Code and the Federal Regulations provide several exceptions to NRA Withholding that might apply in certain circumstances.

There are several exceptions to the NRA Withholding requirement with regard to compensation paid for personal services, if such compensation is effectively connected with the conduct of a trade or business within the United States.^Footnote2 Income earned by foreign artists for their personal services performed within the United States is considered income effectively connected to a trade or business in the United States.

The exceptions to NRA Withholding, which are relevant to the circumstances common to foreign artists, are as follows:

• Compensation that is subject to withholding under Section 3402 ("graduated withholding") and the regulations under that section. (Employee/Employer relationship);



• Compensation for services performed by a nonresident alien who is a resident of Canada or Mexico and who enters and leaves the United States at frequent intervals;



• The nonresident alien enters into a central withholding agreement with the Assistant Commissioner (International) of the Internal Revenue Service;



• Compensation subject to Internal Revenue Code exceptions, pertaining to payments to certain foreign corporations or certain individuals performing as employees of foreign employers;



• Compensation that is, or will be exempt from the income tax imposed by the Code by reason of a tax treaty.