Tax & Accounting Blog

Information Reporting on Form 1042-S, A New Challenge for Accounts Payable – Part 5: Payments to Artists and Athletes Recipient Code

Tax Information Reporting, TIN Compliance, W-8 & W-9 Foreign Reporting, Withholding Management August 15, 2012

The IRS Explanation of Codes includes footnote 2 which states that Recipient Code 09 (artist or athlete) should be used instead of Recipient Code 01 (Individual), Code 02 (Corporation), and Code 03 (Partnership) if the Income Code is 20. Income Code 20 is used for performance earnings of artists and athletes. These terms have been updated in treaties and by the IRS to “entertainers” and “sportsmen” to describe more clearly individuals with performance income.

Footnote 1 of the Explanation of Codes states that compensation that otherwise would be covered by Income Codes 16-19 should be designated as Income Code 20 if “the income is attributable to the recipient’s occupation as an artist or athlete.” Footnote 2 regarding Recipient Code 09 implies that Income Code 20 should also be assigned to the specified entities if the income of the entity is from the performance of an entertainer or sportsman. This coding allows the IRS to identify for special scrutiny the income of entertainers and sportsmen paid to corporations and partnerships claiming exemption from withholding. The type of entity with performance income may take other forms, however, such as a complex trust (Form W-8BEN presented) or a tax-exempt organization or private foundation (Form W-8EXP presented) which may in fact be mere agents for a performer or performers. Based on current coding instructions these entities should be identified by their respective Recipient Codes – Code 05 (Trust), 07 (Tax-exempt Organization), and 08 (Private Foundation). It is not clear whether the Income Code for such performance income should be Income Code 20 (and if so, Recipient Code 09?) or Income Code 50 (for lack of a specific code for pay for services to an entity as discussed below).