Question

Rick Rocker, a nonresident alien, is interested in performing a rock concert in Chicago. A promoter in the U.S. has agreed to pay $1 million to Rocker to perform. Rocker himself incurs $500,000 in expenses in connection with the concert.

1) What best describes the tax obligations of Rocker?

	a.	Rocker is entitled to deduct the expenses against his gross income for U.S. tax purposes.
	b.	Rocker has a U.S. trade or business.
	c.	Rocker has a U.S. trade or business and must file a Form 1040NR that reports $500,000 of effectively connected income.
	d.	Rocker has $1 million of compensation income from personal services performed.
	e.	All of the above.

2) What best describes the tax obligations of the promoter?

	a.	Promoter must withhold $300,000 on the fixed, determinable, annual, or periodic income paid to Rocker.
	b.	Promoter must withhold $370,000 on the effectively connected income paid to Rocker.
	c.	Promoter does not have any withholding obligation on the fixed, determinable, annual, or periodic income paid to Rocker.
	d.	All of the above.
	e.	None of the above.

Answer 1

Q.No-1

Answer is D (All of the Above)

Reason

1.Rick Rocker having income from trade or business,Expenses incurred solely for the purpose of trade or business(being his concert) can be claimed as deduction for U.S tax purpose.(Option A & B covered here)

2.The Income from Concert is required to be filed in FORM 1040NR as per US tax laws in which he required to disclose his $ 1 Million

Q.No-2

Answer-A

Reason:

As per US tax laws,The promoter who is payer is required to withhold 30% of amount payable,which is on $ 1 Million

Amount to be withhold= $ 1 Million*30%=$ 3,00,000

Note:-

30% is the rate as per US tax laws which is required to be withheld for payments to trade or business