U.S. Cross-Border Tax Advice, Planning, and Compliance Services for Professional Athletes

Generally, bonuses paid to Canadian residents or to nonresidents of Canada for work performed in Canada are included in an athlete’s total income. However, the maximum tax rate is 15%. Similar rules apply to how signing bonuses are taxed in the United States. At the same time, taxation of signing bonuses varies depending on the country of residence of the athlete.  

• Developed arguments and a tax filing position for claiming substantial amount of certain tax deductions (missed by previous tax return preparer) for a professional athlete defrauded by their agent.

• Structured several investments in U.S. real property, as well as advised on tax-efficient structuring of similar investments.

• Advised professional athletes on applicable U.S. cross-border tax consequences and implications arising from a proposed Retirement Compensation Arrangement (RCA), including developing a corresponding tax filing position.

• Advised professional athletes on US tax residency (income tax) and domicile (U.S. estate and gift tax) considerations designed to effectively manage the athletes’ U.S. tax exposure.

• Advised professional athletes on tax-efficient endorsement income structuring.

• Prepared various successful Notice of Objections related to income souring for non-resident athletes, resulting in significant tax savings.

Legal and agent fees are often a significant expense for a professional athlete. In Canada, legal fees must meet particular requirements in order to be deductible. In the United States, these fees are typically deductible, with few exceptions. In Canada, agent fees are not deductible. Importantly, they are deductible, as an itemized deduction, in the United States.
This is one of the examples when pro-active planning may result in significant tax reduction for some professional athletes.  Residency planning for professional athletes may be critical, especially, when there may be such an opportunity before they established their tax residency in a particular jurisdiction.

• IRS Form W-7, Application for IRS Individual Taxpayer Identification Number (filed to request an Individual Taxpayer Identification Number (ITIN))
• IRS Form SS-4, Application for Employer Identification Number (filed to request an Employer Identification Number – tax identification number for a foreign or U.S. domestic entity)
• IRS Form W-9, Request for Taxpayer Identification Number and Certification (filed to establish U.S. person status and beneficial ownership of the income derived from the United States)
• IRS Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (filed to establish non-US person status for an individual, beneficial ownership of the income, and claiming treaty benefits, if applicable with respect to income derived from the United States)
• IRS Form W-8BEN-E, Certificate of Entities Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) (filed to establish non-US person status for an entity, beneficial ownership of the income, claiming treaty benefits, and determine FATCA (Foreign Account Tax Compliance Act) entity classification for US federal income tax purposes, as well as disclose information on certain U.S. ultimate owners, as applicable)
• IRS Form 1040, U.S. Individual Income Tax Return (filed by U.S. persons, including U.S. citizens, Green card holders and residents)
• IRS Form 1040NR, Nonresident Alien Individual Income Tax Return (filed by non-US persons, for example Canadian-resident athletes with duty days in the United States)
• IRS Form 8833, Treaty-Based Return Position (filed to claim benefits of the Canada-US income tax treaty or other applicable U.S. income tax treaty)
• IRS Form 8840, Closer Connection Exception Statement for Aliens (filed to claim closer connection to Canada or other relevant foreign country)
• IRS Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations (filed by U.S. persons with ownership in foreign corporations)
• IRS Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund (filed by U.S. shareholders of certain passive entities, Passive Foreign Investment Companies (PFICs), when a Qualified Electing Fund (QEF) election or Mark-to-Market election is made; typically filed for direct investments by US persons in foreign mutual funds)
• Form 8938, Statement of Foreign Financial Assets (filed by U.S. persons with foreign financial assets, provided certain thresholds are met)
• IRS Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner (filed by certain foreign trusts)
• IRS Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts (filed by certain U.S. persons receiving distributions from foreign trusts or certain gifts from nonresident alien individuals or foreign entities)
• IRS Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests (filed to apply for IRS withholding certificate to reduce FIRPTA (Foreign Investment in Real Property Tax Act) withholding on a sale of U.S. real property. Transaction-based filing.
• IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return (filed by deceased U.S. person to report fair market value of worldwide estate in excess of estate tax exemption)
• IRS Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, (filed by a deceased non-U.S. person to report U.S. situs assets in excess of estate tax exemption)

These forms vary by state and locality where a professional athlete provided services (played a game) and/or were or deemed to be a resident.  U.S. Tax IQ can provide a state tax rate matrix to assist clients in making potential team decisions.

FinCen 114 (Foreign Bank Account Reporting (FBAR)) (filed by U.S. persons with foreign bank accounts and assets, including Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs), provided certain threshold is met)