Compensation for Labor or Personal Services: Artists and Athletes, 58787-58790 [E7-20496]
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Federal Register / Vol. 72, No. 200 / Wednesday, October 17, 2007 / Proposed Rules
this paragraph (J) refer only to the U.S.
financial institution, they shall apply in
the same manner to a QI or WP/WT and
where they refer to an NQI, they shall
apply in the same manner to a flowthrough that is not a WP or WT.
(1) The U.S. financial institution shall
provide the information and
instructions described in paragraph
(c)(5)(iii)(C) of this section to the NQI
and the NQI shall provide the same
information and instructions to its
account holders.
(2) The content of the section 302
payment certification shall include the
information described in paragraph
(c)(5)(iii)(D) of this section.
(3) The NQI shall provide the section
302 payment certification to the U.S.
financial institution together with the
otherwise required documentation and a
withholding statement made in
accordance with the section 302
payment certification.
(4) The U.S. financial institution shall
treat the section 302 payment as a
dividend or a payment in exchange for
stock based on the information and
documentation provided to it under
paragraph (c)(5)(iii)(J)(3) of this section.
The U.S. financial institution shall
withhold and report on a specific payee
basis in accordance with this
information.
(d) * * * (1) * * * This paragraph
does not apply to a public section 302
distribution to which paragraph (c)(5)
applies.
*
*
*
*
*
Linda E. Stiff,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. E7–20504 Filed 10–16–07; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–114125–07]
RIN 1545–BG57
Compensation for Labor or Personal
Services: Artists and Athletes
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
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AGENCY:
SUMMARY: This document contains
proposed changes to existing final
regulations regarding the source of
compensation for labor or personal
services. The proposed changes are
needed to clarify the determination of
source of compensation of a person,
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including an artist or athlete, who is
compensated for labor or personal
services performed at specific events.
These proposed regulations affect such
an individual.
DATES: Written or electronic comments
and requests for a public hearing must
be received by January 15, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–114125–07), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be handdelivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–114125–07),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC, or sent
electronically via the Federal
eRulemaking Portal at https://
www.regulations.gov (IRS–REG–
114125–07).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
David Bergkuist at (202) 622–3850;
concerning the submissions of
comments and requests for a hearing,
Regina Johnson at (202) 622–7180 (not
toll free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments under 26 CFR part 1 under
section 861 of the Internal Revenue
Code (Code). On July 14, 2005, final
regulations that revised and amended
§ 1.861–4 were published in the Federal
Register (70 FR 40663) as TD 9212. In
these final regulations, § 1.861–
4(b)(2)(ii)(C)(3) was reserved with
respect to compensation for labor or
personal services performed partly
within and partly without the United
States by an artist or an athlete who is
an employee.
Section 861(a)(3) of the Internal
Revenue Code provides that, subject to
certain exceptions, compensation for
labor or personal services performed in
the United States is gross income from
sources within the United States. See
also § 1.861–4(a) of the regulations.
Section 862(a)(3) of the Code provides
that compensation for labor or personal
services performed without the United
States is gross income from sources
without the United States. Section
1.861–4(b) provides rules for
determining the source of compensation
for labor or personal services performed
partly within and partly without the
United States. Section 1.861–4(b)(2)(i)
provides rules for determining the
source of compensation for labor or
personal services performed partly
within and partly without the United
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58787
States by an individual other than as an
employee. Section 1.861–4(b)(2)(ii)
provides rules for determining the
source of compensation for labor or
personal services performed partly
within and partly without the United
States by an individual as an employee.
Under § 1.861–4(b)(2)(ii), if an
individual performs labor or personal
services as an employee, the source of
the individual’s compensation is
generally determined on a time basis,
with certain fringe benefits sourced on
a geographic basis. An individual may
determine the source of his or her
compensation as an employee for labor
or personal services performed partly
within and partly without the United
States under an alternative basis if the
individual establishes to the satisfaction
of the Commissioner that, under the
facts and circumstances of the particular
case, the alternative basis more properly
determines the source of the
compensation than the general rules of
§ 1.861–4(b)(2)(ii). See § 1.861–
4(b)(2)(ii)(C)(1)(i). In addition, the
Commissioner may, under the facts and
circumstances of the particular case,
determine the source of compensation
that is received by an individual as an
employee under an alternative basis if
such compensation is not for a specific
time period, provided that the
Commissioner’s alternative basis
determines the source of compensation
in a more reasonable manner than the
basis used by the individual.
The final regulations at § 1.861–
4(b)(2)(ii)(C)(3) provided a reservation
with respect to the source of
compensation for labor or personal
services performed partly within and
partly without the United States by an
artist or athlete who is an employee.
The preamble of TD 9212 indicated that
it was intended that the rule for artists
and athletes who are employees, when
issued, would require such individuals
to determine the proper source of their
compensation for labor or personal
services on the basis that most correctly
reflects the proper source of income
under the facts and circumstances of the
particular case, consistent with current
law.
Explanation of Provisions
The proposed regulations would set
forth a new ‘‘events basis’’ rule in
§ 1.861–4(b)(2)(ii)(G) and make certain
other clarifying changes to the existing
final regulations. The proposed
regulations also would remove § 1.861–
4(b)(2)(ii)(C)(3), which reserved with
respect to artists and athletes.
The amount of income received by a
person, including an individual who is
an artist or an athlete, that is properly
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treated as compensation from the
performance of labor or personal
services is determined based on all of
the facts and circumstances of the
particular case. Proposed § 1.861–
4(b)(2)(ii)(G) specifies that the amount
of compensation for labor or personal
services determined on an event basis is
the amount of the person’s
compensation which, based on the facts
and circumstances, is attributable to the
labor or personal services performed at
the location of a specific event.
The IRS and the Treasury Department
have determined that the proper source
of compensation received by a person,
including an individual who is an artist
or athlete, specifically for performing
labor or personal services at an event is
the location of the event. A basis that
purports to determine the source of
compensation from the performance of
labor or personal services at a specific
event, whether on a time basis or
otherwise, by taking into account the
location of labor or personal services
performed in preparation for the
performance of labor or personal
services at the specific event will
generally not be the basis that most
correctly determines the source of the
compensation. This rule applies to
situations covered by § 1.861–4(a) and
(b).
Under § 1.861–4(a), the source of
compensation for labor or personal
services performed wholly within the
United States is generally from sources
within the United States. Therefore, if a
person, including an individual who is
an artist or an athlete, is specifically
compensated for performing labor or
personal services at an event in the
United States, the source of such
compensation is wholly within the
United States because the labor or
personal services were performed
wholly at an event within the United
States. The proposed regulations state
that a basis that purports to determine
the source of such income on a time
basis by taking into account the location
of labor or personal services performed
in preparation for the performance of
labor or personal services at the specific
event will generally not be a more
reasonable basis for determining source
of the compensation. The proposed
regulations add an example to § 1.861–
4(c) to illustrate the application of this
rule.
Section 1.861–4(b) applies to
instances in which a person is
compensated for performing labor or
personal services at multiple events,
only some of which are within the
United States, and at least a portion of
the person’s compensation cannot be
specifically attributed to the person’s
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performance of labor or personal
services at a specific location. If the
person is not an individual who is
compensated as an employee, the source
of compensation for labor or personal
services is determined on the basis that
most correctly reflects the proper source
of that income under the facts and
circumstances of the particular case. See
§ 1.861–4(b)(1) and (2)(i). If a person is
compensated specifically for labor or
personal services performed at multiple
events, the basis that most correctly
reflects the proper source of that income
under the facts and circumstances of the
particular case will generally be the
location of the events. In addition, a
basis that purports to determine the
source of such income on a time basis
by taking into account the location of
labor or personal services performed in
preparation for the performance of labor
or personal services at the specific event
will generally not be the basis that most
correctly reflects the proper source of
the compensation under proposed
§ 1.861–4(b)(2)(ii)(G).
The Commissioner may, under the
facts and circumstances of the particular
case, determine the source of
compensation that is received by an
individual as an employee under an
alternative basis if such compensation is
not for a specific time period, provided
that the Commissioner’s alternative
basis determines the source of
compensation in a more reasonable
manner than the basis used by the
individual. Compensation specifically
for labor or personal services performed
at a specific event is not compensation
for a specific time period. The basis that
most correctly reflects the proper source
of that income will generally be the
location of the event under proposed
§ 1.861–4(b)(2)(ii)(G). In addition, a
basis that purports to determine the
source of such income on a facts and
circumstances basis by taking into
account the location of labor or personal
services performed in preparation for
the performance of labor or personal
services at the specific event will
generally not more properly determine
the source of the compensation under
proposed § 1.861–4(b)(2)(ii)(G).
These proposed regulations provide
examples to illustrate the event basis for
determining the source of compensation
of an individual, including an artist or
athlete, who is compensated specifically
for performing labor or personal services
at an event.
The revisions to § 1.861–4(b)(1),
(b)(2)(i), and (b)(ii)(C)(1)(i) and (ii)
which refer to the event basis; the
revisions in § 1.861–4(b)(2)(ii)(C)(3),
(b)(2)(ii)(E), and (b)(2)(ii)(F), (b)(2)(ii)(G),
and (c); and new Examples 7 through 11
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of § 1.861–4(c) would be effective for
taxable years beginning after the date
final regulations are published in the
Federal Register.
Special Analysis
It has been determined that this notice
of proposed rulemaking is not a
significant regulatory action as defined
in Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has also been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations. Because these
regulations do not impose a collection
of information on small entities, the
provisions of the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply.
Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of
proposed rulemaking has been
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
written (a signed original and eight (8)
copies) or electronic comment that is
submitted timely to the IRS. The
Treasury Department and the IRS
request comments on the clarity of the
proposed rules and how they can be
made easier to understand. All
comments will be available for public
inspection and copying. A hearing will
be scheduled if requested in writing by
any person that timely submits written
comments. If a public hearing is
scheduled, notice of the date, time, and
place for a public hearing will be
published in the Federal Register.
Drafting Information
The principal author of these
proposed regulations is David Bergkuist,
Office of the Associate Chief Counsel
(International). However, other
personnel from the IRS and the Treasury
Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
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paragraph heading and removing
paragraph (b)(1)(ii).
16. Adding a new sentence at the end
of newly-designated paragraph (e) and
revising the paragraph heading.
The additions read as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
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Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.861–4 is amended
by:
1. Removing the heading for
paragraph (b)(1)(i).
2. Redesignating paragraph (b)(1)(i) as
paragraph (b)(1).
3. In the last sentence of newly
designated paragraph (b)(1), adding the
language ‘‘or on the event basis as
defined in paragraph (b)(2)(ii)(G) of this
section,’’ after the language ‘‘paragraph
(b)(2)(ii)(E) of this section,’’.
4. In the last sentence of paragraph
(b)(2)(i), adding the language ‘‘or on the
event basis as defined in paragraph
(b)(2)(ii)(G) of this section,’’ after the
language ‘‘paragraph (b)(2)(ii)(E) of this
section,’’.
5. In the first sentence of paragraph
(b)(2)(ii)(C)(1)(i), adding the language ‘‘,
including an event basis as defined in
paragraph (b)(2)(ii)(G) of this section,’’
after the language ‘‘alternative basis’’
wherever the language ‘‘alternative
basis’’ appears in the sentence.
6. In the first sentence of paragraph
(b)(2)(ii)(C)(1)(ii), adding the language
‘‘event basis as defined in paragraph
(b)(2)(ii)(G) of this section or other’’ after
the language ‘‘partly without the United
States under an’’.
7. Removing paragraph (b)(2)(ii)(C)(3).
8. In the first sentence of paragraph
(b)(2)(ii)(E), removing the language
‘‘individual’s’’ and adding the language
‘‘person’s’’ in its place, removing the
language ‘‘individual’’ and adding the
language ‘‘person’’ in its place, and
removing the language ‘‘his or hers’’ and
adding the language ‘‘such person’s’’ in
its place.
9. In the second sentence of paragraph
(b)(2)(ii)(F), removing the language ‘‘an
individual’’ and adding the language ‘‘a
person’’ in its place.
10. Redesignating paragraphs (c) and
(d) as new paragraphs (d) and (e),
respectively.
11. Redesignating paragraph
(b)(2)(ii)(G) as new paragraph (c).
12. Adding a new paragraph
(b)(2)(ii)(G).
13. In the introductory language of
newly-designated paragraph (c),
removing the language ‘‘paragraph
(b)(2)(ii)’’ and adding the language
‘‘section’’ in its place.
14. Adding new Examples 7, 8, 9, and
10 to newly-designated paragraph (c).
15. Redesignating paragraph (b)(1)(ii)
Example, as new Example 11 in newlydesignated paragraph (c), revising the
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§ 1.861–4 Compensation for labor or
personal services.
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(b) * * *
(2) * * *
(ii) * * *
(G) Event basis. The amount of
compensation for labor or personal
services determined on an event basis is
the amount of the person’s
compensation which, based on the facts
and circumstances, is attributable to the
labor or personal services performed at
the location of a specific event. The
source of compensation for labor or
personal services determined on an
event basis is the location of the specific
event. A basis that purports to
determine the source of compensation
from the performance of labor or
personal services at a specific event,
whether on a time basis or otherwise, by
taking into account the location of labor
or personal services performed in
preparation for the performance of labor
or personal services at the specific event
will generally not be the basis that most
correctly determines the source of the
compensation.
(c) Examples. * * *
Example 7. P, a citizen and resident of
Country A, is paid by Company Z to make
a presentation in the United States in 2009.
In 2010, Company Z pays P to make 10
presentations, four of which are in the United
States and six of which are outside the
United States. P is compensated separately
by Company Z for each presentation. For
some presentations P receives a flat fee from
Company Z. For the remaining presentations
P receives compensation that is based on a
formula. Under the facts and circumstances
of the particular case, the source of the
compensation for each presentation is most
correctly reflected on an event basis, as
defined in paragraph (b)(2)(ii)(G) of this
section. Because P is compensated separately
for each presentation, the source of P’s
compensation from Company Z for the 2009
presentation within the United States and the
four 2010 presentations in the United States
will be from sources in the United States.
The amounts will be determined based on
the flat fee or the formula as contractually
determined.
Example 8. (i) Facts. Group B, a Country
N corporation, is a musical group. All of the
members of Group B are citizens and
residents of Country N. Group B has an
employment arrangement with Corp Y, a
Country N corporation, to perform as
directed by Corp Y. Corp Y and a tour
promoter enter into a contract to provide the
services of Group B to perform in musical
concerts in the United States and Country M
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during a 45-day period. Under the contract,
Group B performs concerts in 15 cities, 10 of
which are in the United States. Prior to
entering the United States, Group B spends
60 days rehearsing and preparing in Country
N. Under the contract with Corp Y, Group B
receives a flat fee of $10,000,000 for
performing in all 15 cities. The fee is based
on expected revenues from the musical
concerts. Each concert is expected to require
a similar amount and type of labor or
personal services by Group B. At the end of
the tour, an analysis of the revenues from all
of the concerts shows that 80% of the total
revenues from the tour were from the
performances within the United States.
(ii) Analysis. Under the facts and
circumstances basis of paragraph (b)(1) of
this section, the source of the compensation
received under the contract is most correctly
reflected on an event basis, as defined in
paragraph (b)(2)(ii)(G) of this section, with
amounts determined based on the relative
gross receipts attributable to the
performances within and without the United
States. Thus, of the $10,000,000 of
compensation included in Group B’s gross
income, $8,000,000 ($10,000,000 × .80) is
attributable to labor or personal services
performed by Group B within the United
States and $2,000,000 ($10,000,000 × .20) is
attributable to the labor or personal services
performed by Group B without the United
States.
Example 9. (i) Facts. A, a citizen and
resident of Country M, is an employee of
Corp X, a Country M corporation. During
2008, Corp X is contractually obligated to
provide A’s services to perform in a specific
athletic event in the United States. Under A’s
employment contract with Corp X, A is
required to perform at a professional level
that requires training and other preparation
prior to the event. A undertakes all of this
preparation in Country M. Solely as a result
of A’s performance at the athletic event in the
United States, A receives $2,000,000 from
Corp X.
(ii) Analysis. The entire $2,000,000
received by A for performing labor or
personal services at the athletic event in the
United States is income from sources within
the United States on an event basis as
defined in paragraph (b)(2)(ii)(G) of this
section. A’s compensation is attributable
entirely to labor or personal services
performed within the United States at the
athletic event. It is inappropriate to conclude
that the source of A’s compensation for labor
or personal services is performed partly
within and partly without the United States
simply because A’s preparation for the
athletic event involved activities in Country
M.
Example 10. (i) Facts. X, a citizen and
resident of Country M, is employed under a
standard player’s contract by a professional
sports team (Team) that plays its games both
within and without the United States during
its season. The term of the contract is for
twelve months beginning on October 1.
Under the contract, X’s salary could be paid
in semi-monthly installments beginning with
the first game of the regular season and
ending with the final game played by the
Team. Alternatively, because the regular
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playing season was shorter than the one-year
period covered by the contract, X had the
option to receive his salary over a twelvemonth period. X elected this option. In
addition, during the period of this
employment contract, X, as an employee of
Team, was required to practice at the
direction of the Team as well as to participate
in games. During 2008, X participated in all
practices and games of Team and received a
salary. Team qualified for postseason games
in 2008. X also received in 2008 additional
amounts for playing in preseason and
postseason games for the Team.
(ii) Analysis. The salary paid to X by the
Team is considered to be personal services
compensation of X that X received as an
employee of the Team. The source of this
compensation within the United States is
determined under the time basis method
described in paragraph (b)(2)(ii)(A) of this
section and accordingly is determined based
upon the number of days X performed
services for the Team within the United
States during 2008 over the total number of
days that X performed services for the Team
during 2008. The source of the additional
amounts X received for playing in preseason
and postseason games is determined under
the event basis method described in
paragraph (b)(2)(ii)(G) of this section and
accordingly is determined based on the
location where each such preseason or
postseason game was played.
Example 11. * * *
and Health Act of 1977 (the ‘‘Mine
Act’’). Hearings are held before the
Commission’s Administrative Law
Judges, and appellate review is provided
by a five-member Review Commission
appointed by the President and
confirmed by the Senate. The
Commission is proposing to revise its
rules implementing the Freedom of
Information Act (‘‘FOIA’’) in light of its
experience under the rules, the need to
update its fee schedules, and changes in
implementing the FOIA mandated by
Executive Order 13,392.
DATES: Comments must be submitted on
or before November 16, 2007.
ADDRESSES: Comments and questions
may be mailed to Michael A. McCord,
General Counsel, Office of the General
Counsel, Federal Mine Safety and
Health Review Commission, 601 New
Jersey Avenue, NW., Suite 9500,
Washington, DC 20001, or sent via
facsimile to 202–434–9944.
FOR FURTHER INFORMATION CONTACT:
Michael A. McCord, General Counsel,
Office of the General Counsel, 601 New
Jersey Avenue, NW., Suite 9500,
Washington, DC 20001; telephone 202–
434–9935; fax 202–434–9944.
SUPPLEMENTARY INFORMATION:
*
I. Background
The Commission last made
substantive changes to its rules
implementing the FOIA in 1997. 62 FR
55,332, Oct. 24, 1997. Since those last
rule revisions, the Commission has
expanded its use of electronic records,
making more relevant the amendments
to the FOIA in 1996 that addressed
electronic recordkeeping in federal
agencies. Additionally, on December 14,
2005, President George W. Bush signed
Executive Order 13,392, which
mandated changes in practices among
federal agencies to ensure timely and
effective responses to the public’s
requests for information. 70 FR 75,373.
Further, based on its years of experience
in implementing the FOIA, the
Commission determined that certain
changes in its FOIA rules were also
necessary to better reflect agency
practice under the rules and to
maximize the Commission’s utilization
of the internet to disseminate
information. Finally, there had not been
a comprehensive review of the
Commission’s fee schedule in over ten
years, and the present rulemaking is an
appropriate time to update and revise
those fees.
*
*
*
*
(e) Effective/applicability date. * * *
The revisions in paragraphs (b)(1),
(b)(2)(i), and (b)(2)(ii)(C)(1)(i) and (ii) of
this section which refer to the event
basis; the revisions of paragraphs
(b)(2)(ii)(C)(3), (b)(2)(ii)(E), (b)(2)(ii)(F),
(b)(2)(ii)(G), and (c) of this section; and
Examples 7 through 11 of paragraph (c)
of this section apply to taxable years
beginning after the date final regulations
are published in the Federal Register.
Linda E. Stiff,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. E7–20496 Filed 10–16–07; 8:45 am]
BILLING CODE 4830–01–P
FEDERAL MINE SAFETY AND HEALTH
REVIEW COMMISSION
29 CFR Part 2702
Freedom of Information Act Procedural
Rules
Federal Mine Safety and Health
Review Commission.
ACTION: Proposed rule.
cprice-sewell on PROD1PC66 with PROPOSALS
AGENCY:
SUMMARY: The Federal Mine Safety and
Health Review Commission (the
‘‘Commission’’) is an independent
adjudicatory agency that provides
hearings and appellate review of cases
arising under the Federal Mine Safety
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II. Section-by-Section Analysis
Set forth below is an analysis of
proposed changes to the Commission’s
rules.
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Part 2702—Regulations Implementing
the Freedom of Information Act
29 CFR 2702.1
The Commission is proposing to
clarify 29 CFR 2702.1. First, 29 CFR
2702.1 explains that ‘‘all designated
information’’ be made readily available
to the public, but it is not clear by
whom and under what authority the
information would be ‘‘designated.’’ The
Commission proposes revising this
language to clarify that the type of
information that would be made
available to the public is information
subject to disclosure pursuant to FOIA
and the Commission’s FOIA rules and
not otherwise protected by law.
Secondly, the last sentence in 29 CFR
2702.1 states that the scope of the
Commission’s FOIA regulations may be
limited to requests for information that
is not presently the ‘‘subject of litigation
before the Commission.’’ 29 CFR 2702.1.
As currently written, the rule could be
read to exclude discovery records from
the Commission’s disclosure obligation
under FOIA. In fact, however, such
records could be subject to disclosure
pursuant to FOIA, unless they fall under
one of the nine exemptions provided in
the statute.
The Commission proposes revising 29
CFR 2702.1 to clarify that the scope of
its FOIA rules is limited to records or
information of the agency or within its
custody. The proposed rule also
includes language stating that the
Commission’s FOIA rules do not affect
discovery in adversary proceedings
before the Commission, which are
governed by the Commission’s Rules of
Procedure, 29 CFR part 2700.
Finally, the Commission proposes
amending 29 CFR 2702.1 to include a
reference to the Commission’s Web site
as an alternative means of obtaining the
Commission’s FOIA Guide.
29 CFR 2702.3
Initial Requests
On December 14, 2005, the President
issued Executive Order 13,392, which
contained several statements of
government-wide FOIA policy as well
as several additional planning and
reporting requirements. The Executive
Order requires agencies to appoint a
Chief FOIA Officer who has ‘‘agencywide responsibility for efficient and
appropriate compliance with the FOIA.’’
See Executive Order 13,392, sec. 2(b)(I).
Under the Commission’s current rule,
the Executive Director makes the initial
determination on a FOIA request with
the consent of a majority of the
Commissioners. 29 CFR 2702.3(b).
Pursuant to the Executive Order, the
E:\FR\FM\17OCP1.SGM
17OCP1
]]>Agencies
[Federal Register Volume 72, Number 200 (Wednesday, October 17, 2007)]
[Proposed Rules]
[Pages 58787-58790]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-20496]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-114125-07]
RIN 1545-BG57
Compensation for Labor or Personal Services: Artists and Athletes
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed changes to existing final
regulations regarding the source of compensation for labor or personal
services. The proposed changes are needed to clarify the determination
of source of compensation of a person, including an artist or athlete,
who is compensated for labor or personal services performed at specific
events. These proposed regulations affect such an individual.
DATES: Written or electronic comments and requests for a public hearing
must be received by January 15, 2008.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-114125-07), room
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
114125-07), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC, or sent electronically via the Federal
eRulemaking Portal at https://www.regulations.gov (IRS-REG-114125-07).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
David Bergkuist at (202) 622-3850; concerning the submissions of
comments and requests for a hearing, Regina Johnson at (202) 622-7180
(not toll free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments under 26 CFR part 1
under section 861 of the Internal Revenue Code (Code). On July 14,
2005, final regulations that revised and amended Sec. 1.861-4 were
published in the Federal Register (70 FR 40663) as TD 9212. In these
final regulations, Sec. 1.861-4(b)(2)(ii)(C)(3) was reserved with
respect to compensation for labor or personal services performed partly
within and partly without the United States by an artist or an athlete
who is an employee.
Section 861(a)(3) of the Internal Revenue Code provides that,
subject to certain exceptions, compensation for labor or personal
services performed in the United States is gross income from sources
within the United States. See also Sec. 1.861-4(a) of the regulations.
Section 862(a)(3) of the Code provides that compensation for labor or
personal services performed without the United States is gross income
from sources without the United States. Section 1.861-4(b) provides
rules for determining the source of compensation for labor or personal
services performed partly within and partly without the United States.
Section 1.861-4(b)(2)(i) provides rules for determining the source of
compensation for labor or personal services performed partly within and
partly without the United States by an individual other than as an
employee. Section 1.861-4(b)(2)(ii) provides rules for determining the
source of compensation for labor or personal services performed partly
within and partly without the United States by an individual as an
employee.
Under Sec. 1.861-4(b)(2)(ii), if an individual performs labor or
personal services as an employee, the source of the individual's
compensation is generally determined on a time basis, with certain
fringe benefits sourced on a geographic basis. An individual may
determine the source of his or her compensation as an employee for
labor or personal services performed partly within and partly without
the United States under an alternative basis if the individual
establishes to the satisfaction of the Commissioner that, under the
facts and circumstances of the particular case, the alternative basis
more properly determines the source of the compensation than the
general rules of Sec. 1.861-4(b)(2)(ii). See Sec. 1.861-
4(b)(2)(ii)(C)(1)(i). In addition, the Commissioner may, under the
facts and circumstances of the particular case, determine the source of
compensation that is received by an individual as an employee under an
alternative basis if such compensation is not for a specific time
period, provided that the Commissioner's alternative basis determines
the source of compensation in a more reasonable manner than the basis
used by the individual.
The final regulations at Sec. 1.861-4(b)(2)(ii)(C)(3) provided a
reservation with respect to the source of compensation for labor or
personal services performed partly within and partly without the United
States by an artist or athlete who is an employee. The preamble of TD
9212 indicated that it was intended that the rule for artists and
athletes who are employees, when issued, would require such individuals
to determine the proper source of their compensation for labor or
personal services on the basis that most correctly reflects the proper
source of income under the facts and circumstances of the particular
case, consistent with current law.
Explanation of Provisions
The proposed regulations would set forth a new ``events basis''
rule in Sec. 1.861-4(b)(2)(ii)(G) and make certain other clarifying
changes to the existing final regulations. The proposed regulations
also would remove Sec. 1.861-4(b)(2)(ii)(C)(3), which reserved with
respect to artists and athletes.
The amount of income received by a person, including an individual
who is an artist or an athlete, that is properly
[[Page 58788]]
treated as compensation from the performance of labor or personal
services is determined based on all of the facts and circumstances of
the particular case. Proposed Sec. 1.861-4(b)(2)(ii)(G) specifies that
the amount of compensation for labor or personal services determined on
an event basis is the amount of the person's compensation which, based
on the facts and circumstances, is attributable to the labor or
personal services performed at the location of a specific event.
The IRS and the Treasury Department have determined that the proper
source of compensation received by a person, including an individual
who is an artist or athlete, specifically for performing labor or
personal services at an event is the location of the event. A basis
that purports to determine the source of compensation from the
performance of labor or personal services at a specific event, whether
on a time basis or otherwise, by taking into account the location of
labor or personal services performed in preparation for the performance
of labor or personal services at the specific event will generally not
be the basis that most correctly determines the source of the
compensation. This rule applies to situations covered by Sec. 1.861-
4(a) and (b).
Under Sec. 1.861-4(a), the source of compensation for labor or
personal services performed wholly within the United States is
generally from sources within the United States. Therefore, if a
person, including an individual who is an artist or an athlete, is
specifically compensated for performing labor or personal services at
an event in the United States, the source of such compensation is
wholly within the United States because the labor or personal services
were performed wholly at an event within the United States. The
proposed regulations state that a basis that purports to determine the
source of such income on a time basis by taking into account the
location of labor or personal services performed in preparation for the
performance of labor or personal services at the specific event will
generally not be a more reasonable basis for determining source of the
compensation. The proposed regulations add an example to Sec. 1.861-
4(c) to illustrate the application of this rule.
Section 1.861-4(b) applies to instances in which a person is
compensated for performing labor or personal services at multiple
events, only some of which are within the United States, and at least a
portion of the person's compensation cannot be specifically attributed
to the person's performance of labor or personal services at a specific
location. If the person is not an individual who is compensated as an
employee, the source of compensation for labor or personal services is
determined on the basis that most correctly reflects the proper source
of that income under the facts and circumstances of the particular
case. See Sec. 1.861-4(b)(1) and (2)(i). If a person is compensated
specifically for labor or personal services performed at multiple
events, the basis that most correctly reflects the proper source of
that income under the facts and circumstances of the particular case
will generally be the location of the events. In addition, a basis that
purports to determine the source of such income on a time basis by
taking into account the location of labor or personal services
performed in preparation for the performance of labor or personal
services at the specific event will generally not be the basis that
most correctly reflects the proper source of the compensation under
proposed Sec. 1.861-4(b)(2)(ii)(G).
The Commissioner may, under the facts and circumstances of the
particular case, determine the source of compensation that is received
by an individual as an employee under an alternative basis if such
compensation is not for a specific time period, provided that the
Commissioner's alternative basis determines the source of compensation
in a more reasonable manner than the basis used by the individual.
Compensation specifically for labor or personal services performed at a
specific event is not compensation for a specific time period. The
basis that most correctly reflects the proper source of that income
will generally be the location of the event under proposed Sec. 1.861-
4(b)(2)(ii)(G). In addition, a basis that purports to determine the
source of such income on a facts and circumstances basis by taking into
account the location of labor or personal services performed in
preparation for the performance of labor or personal services at the
specific event will generally not more properly determine the source of
the compensation under proposed Sec. 1.861-4(b)(2)(ii)(G).
These proposed regulations provide examples to illustrate the event
basis for determining the source of compensation of an individual,
including an artist or athlete, who is compensated specifically for
performing labor or personal services at an event.
The revisions to Sec. 1.861-4(b)(1), (b)(2)(i), and
(b)(ii)(C)(1)(i) and (ii) which refer to the event basis; the revisions
in Sec. 1.861-4(b)(2)(ii)(C)(3), (b)(2)(ii)(E), and (b)(2)(ii)(F),
(b)(2)(ii)(G), and (c); and new Examples 7 through 11 of Sec. 1.861-
4(c) would be effective for taxable years beginning after the date
final regulations are published in the Federal Register.
Special Analysis
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It has also
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations. Because these
regulations do not impose a collection of information on small
entities, the provisions of the Regulatory Flexibility Act (5 U.S.C.
chapter 6) do not apply. Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed rulemaking has been submitted to
the Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comment that is submitted timely to the IRS.
The Treasury Department and the IRS request comments on the clarity of
the proposed rules and how they can be made easier to understand. All
comments will be available for public inspection and copying. A hearing
will be scheduled if requested in writing by any person that timely
submits written comments. If a public hearing is scheduled, notice of
the date, time, and place for a public hearing will be published in the
Federal Register.
Drafting Information
The principal author of these proposed regulations is David
Bergkuist, Office of the Associate Chief Counsel (International).
However, other personnel from the IRS and the Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
[[Page 58789]]
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.861-4 is amended by:
1. Removing the heading for paragraph (b)(1)(i).
2. Redesignating paragraph (b)(1)(i) as paragraph (b)(1).
3. In the last sentence of newly designated paragraph (b)(1),
adding the language ``or on the event basis as defined in paragraph
(b)(2)(ii)(G) of this section,'' after the language ``paragraph
(b)(2)(ii)(E) of this section,''.
4. In the last sentence of paragraph (b)(2)(i), adding the language
``or on the event basis as defined in paragraph (b)(2)(ii)(G) of this
section,'' after the language ``paragraph (b)(2)(ii)(E) of this
section,''.
5. In the first sentence of paragraph (b)(2)(ii)(C)(1)(i), adding
the language ``, including an event basis as defined in paragraph
(b)(2)(ii)(G) of this section,'' after the language ``alternative
basis'' wherever the language ``alternative basis'' appears in the
sentence.
6. In the first sentence of paragraph (b)(2)(ii)(C)(1)(ii), adding
the language ``event basis as defined in paragraph (b)(2)(ii)(G) of
this section or other'' after the language ``partly without the United
States under an''.
7. Removing paragraph (b)(2)(ii)(C)(3).
8. In the first sentence of paragraph (b)(2)(ii)(E), removing the
language ``individual's'' and adding the language ``person's'' in its
place, removing the language ``individual'' and adding the language
``person'' in its place, and removing the language ``his or hers'' and
adding the language ``such person's'' in its place.
9. In the second sentence of paragraph (b)(2)(ii)(F), removing the
language ``an individual'' and adding the language ``a person'' in its
place.
10. Redesignating paragraphs (c) and (d) as new paragraphs (d) and
(e), respectively.
11. Redesignating paragraph (b)(2)(ii)(G) as new paragraph (c).
12. Adding a new paragraph (b)(2)(ii)(G).
13. In the introductory language of newly-designated paragraph (c),
removing the language ``paragraph (b)(2)(ii)'' and adding the language
``section'' in its place.
14. Adding new Examples 7, 8, 9, and 10 to newly-designated
paragraph (c).
15. Redesignating paragraph (b)(1)(ii) Example, as new Example 11
in newly-designated paragraph (c), revising the paragraph heading and
removing paragraph (b)(1)(ii).
16. Adding a new sentence at the end of newly-designated paragraph
(e) and revising the paragraph heading.
The additions read as follows:
Sec. 1.861-4 Compensation for labor or personal services.
* * * * *
(b) * * *
(2) * * *
(ii) * * *
(G) Event basis. The amount of compensation for labor or personal
services determined on an event basis is the amount of the person's
compensation which, based on the facts and circumstances, is
attributable to the labor or personal services performed at the
location of a specific event. The source of compensation for labor or
personal services determined on an event basis is the location of the
specific event. A basis that purports to determine the source of
compensation from the performance of labor or personal services at a
specific event, whether on a time basis or otherwise, by taking into
account the location of labor or personal services performed in
preparation for the performance of labor or personal services at the
specific event will generally not be the basis that most correctly
determines the source of the compensation.
(c) Examples. * * *
Example 7. P, a citizen and resident of Country A, is paid by
Company Z to make a presentation in the United States in 2009. In
2010, Company Z pays P to make 10 presentations, four of which are
in the United States and six of which are outside the United States.
P is compensated separately by Company Z for each presentation. For
some presentations P receives a flat fee from Company Z. For the
remaining presentations P receives compensation that is based on a
formula. Under the facts and circumstances of the particular case,
the source of the compensation for each presentation is most
correctly reflected on an event basis, as defined in paragraph
(b)(2)(ii)(G) of this section. Because P is compensated separately
for each presentation, the source of P's compensation from Company Z
for the 2009 presentation within the United States and the four 2010
presentations in the United States will be from sources in the
United States. The amounts will be determined based on the flat fee
or the formula as contractually determined.
Example 8. (i) Facts. Group B, a Country N corporation, is a
musical group. All of the members of Group B are citizens and
residents of Country N. Group B has an employment arrangement with
Corp Y, a Country N corporation, to perform as directed by Corp Y.
Corp Y and a tour promoter enter into a contract to provide the
services of Group B to perform in musical concerts in the United
States and Country M during a 45-day period. Under the contract,
Group B performs concerts in 15 cities, 10 of which are in the
United States. Prior to entering the United States, Group B spends
60 days rehearsing and preparing in Country N. Under the contract
with Corp Y, Group B receives a flat fee of $10,000,000 for
performing in all 15 cities. The fee is based on expected revenues
from the musical concerts. Each concert is expected to require a
similar amount and type of labor or personal services by Group B. At
the end of the tour, an analysis of the revenues from all of the
concerts shows that 80% of the total revenues from the tour were
from the performances within the United States.
(ii) Analysis. Under the facts and circumstances basis of
paragraph (b)(1) of this section, the source of the compensation
received under the contract is most correctly reflected on an event
basis, as defined in paragraph (b)(2)(ii)(G) of this section, with
amounts determined based on the relative gross receipts attributable
to the performances within and without the United States. Thus, of
the $10,000,000 of compensation included in Group B's gross income,
$8,000,000 ($10,000,000 x .80) is attributable to labor or personal
services performed by Group B within the United States and
$2,000,000 ($10,000,000 x .20) is attributable to the labor or
personal services performed by Group B without the United States.
Example 9. (i) Facts. A, a citizen and resident of Country M, is
an employee of Corp X, a Country M corporation. During 2008, Corp X
is contractually obligated to provide A's services to perform in a
specific athletic event in the United States. Under A's employment
contract with Corp X, A is required to perform at a professional
level that requires training and other preparation prior to the
event. A undertakes all of this preparation in Country M. Solely as
a result of A's performance at the athletic event in the United
States, A receives $2,000,000 from Corp X.
(ii) Analysis. The entire $2,000,000 received by A for
performing labor or personal services at the athletic event in the
United States is income from sources within the United States on an
event basis as defined in paragraph (b)(2)(ii)(G) of this section.
A's compensation is attributable entirely to labor or personal
services performed within the United States at the athletic event.
It is inappropriate to conclude that the source of A's compensation
for labor or personal services is performed partly within and partly
without the United States simply because A's preparation for the
athletic event involved activities in Country M.
Example 10. (i) Facts. X, a citizen and resident of Country M,
is employed under a standard player's contract by a professional
sports team (Team) that plays its games both within and without the
United States during its season. The term of the contract is for
twelve months beginning on October 1. Under the contract, X's salary
could be paid in semi-monthly installments beginning with the first
game of the regular season and ending with the final game played by
the Team. Alternatively, because the regular
[[Page 58790]]
playing season was shorter than the one-year period covered by the
contract, X had the option to receive his salary over a twelve-month
period. X elected this option. In addition, during the period of
this employment contract, X, as an employee of Team, was required to
practice at the direction of the Team as well as to participate in
games. During 2008, X participated in all practices and games of
Team and received a salary. Team qualified for postseason games in
2008. X also received in 2008 additional amounts for playing in
preseason and postseason games for the Team.
(ii) Analysis. The salary paid to X by the Team is considered to
be personal services compensation of X that X received as an
employee of the Team. The source of this compensation within the
United States is determined under the time basis method described in
paragraph (b)(2)(ii)(A) of this section and accordingly is
determined based upon the number of days X performed services for
the Team within the United States during 2008 over the total number
of days that X performed services for the Team during 2008. The
source of the additional amounts X received for playing in preseason
and postseason games is determined under the event basis method
described in paragraph (b)(2)(ii)(G) of this section and accordingly
is determined based on the location where each such preseason or
postseason game was played.
Example 11. * * *
* * * * *
(e) Effective/applicability date. * * * The revisions in paragraphs
(b)(1), (b)(2)(i), and (b)(2)(ii)(C)(1)(i) and (ii) of this section
which refer to the event basis; the revisions of paragraphs
(b)(2)(ii)(C)(3), (b)(2)(ii)(E), (b)(2)(ii)(F), (b)(2)(ii)(G), and (c)
of this section; and Examples 7 through 11 of paragraph (c) of this
section apply to taxable years beginning after the date final
regulations are published in the Federal Register.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E7-20496 Filed 10-16-07; 8:45 am]
BILLING CODE 4830-01-P
