Compensation Earned by a Foreign Tax-Exempt Organization
The “Tax-Exempt” exemption is quite limited. Even if a group has obtained tax-exempt status in their home country, they are not automatically qualified for this exemption. There are two ways to qualify:
- The organization must apply for and receive from the IRS a determination letter that their organization qualifies for 501(c)(3) status (i.e., tax-exempt status in the U.S.); or
- The organization must obtain a letter from a U.S. attorney certifying that the group would qualify for 501(c)(3) status with the IRS if they applied. This can be quite costly – the U.S. attorney technically is required to review the same documentation that the IRS would review in making the determination of 501(c)(3) status – a time-consuming process.
While most (if not all) tax-exempt organizations would qualify for a tax treaty “business profits” exemption from taxation, this solution may not be a good fit for a group from a country with whom the U.S. does not have a tax treaty. The group could either apply to the IRS for a determination of 501(c)(3) status, or pay an attorney for the same determination. If the group performs frequently in the U.S., this may be a cost-effective measure to avoid both withholding and taxation.
Although most foreign nonprofit organizations are not automatically eligible for this exemption, the IRS has created a short-cut to obtaining 501(c)(3) status for Canadian organizations that have obtained "Registered Charity" status from the Canadian Revenue Agency. Detailed instructions for Canadian Registered Charities to obtain 501(c)(3) status from the IRS may be found on page 6 of the IRS Form 1023 instructions, which may be downloaded from the IRS website at http://www.irs.gov/pub/irs-pdf/i1023.pdf.
Can a foreign nonprofit organization have their nonprofit status recognized in the U.S. with the help of a foreign lawyer? Or can only a U.S.-based lawyer certify the organization?
Only an attorney licensed to practice law in the United States may certify as to a foreign tax-exempt organization’s tax status.
The appropriate tax treatment for any particular artist is extremely fact-specific, depending on the artist's country of residence, the amount of money earned by the artist in the U.S., and the artist's status as an "individual" or "business" for tax purposes. The information included in this FAQ is not legal advice . For advice on specific situations, contact a qualified tax attorney.