Performing arts organizations are often global institutions. They host performers from all over the world, scout new talent on trips to Europe, Asia, and beyond, and manage significant endowments that are globally diversified.
In concert, all of this creates complex international tax reporting requirements. As many performing arts organizations hold tax-exempt status, these activities don’t necessarily expose the organization to any tax liabilities. However, failure to accurately report foreign activities can result in penalties. To ensure performing arts organizations remain in compliance with their tax reporting requirements, leaders must have a clear understanding of the activities that trigger these requirements.
This guide will explore several of the most important elements of international tax reporting and filing requirements for performing arts institutions. This information is also broadly applicable to other arts and culture nonprofit organizations. Read on to learn how to navigate international tax reporting requirements to ensure your nonprofit remains compliant with regulations.
If your performing arts organization claims federal tax-exempt status, you are required to file IRS Form 990 each year. This form is a summary of the organization’s financial activities, detailing revenue, expenses, assets, liabilities, and more. It is a publicly available document.
When a performing arts organization has any foreign financial activity which meets certain thresholds, it must be reported on Schedule F of Form 990: Statement of Activities Outside the United States.
There are several key categories of foreign activities that may trigger international tax reporting requirements. These include:
Let’s take a closer look at each of these elements and explore the thresholds and reporting requirements for each activity.
Nonprofit organizations are required to report any foreign expenses or revenue that exceed $10,000 in one year. Many mid to large-sized performing arts organizations will comfortably exceed this threshold every year, particularly in terms of expenses.
Foreign expense reporting requirements can be triggered in various ways. It includes when a director makes a trip abroad to scout a new artist, musician, or other performer. Or it can include paying foreign artists to perform. These expenses can also trigger other questions- like are there any tax treaty positions to consider when employing or contracting with a foreign performer or vendor? It’s common for performing arts organizations not to realize that such expenses create the need for a tax disclosure. However, they do, and it’s important to track all expenses and payments and comply with all reporting and withholding requirements.
It’s also common for organizations to support other nonprofits or individuals. When a performing arts organization awards grants over $5,000 to foreign organizations or individuals, these must be disclosed. This includes any kind of assistance provided overseas, including cash and noncash.
Many arts and culture nonprofits, particularly larger ones, manage significant endowments, some portion of which may be invested in foreign entities. Often, an investment committee is trusted with managing these funds, although they may allocate these funds to third-party investment managers.
If any of the nonprofit’s funds are invested in foreign entities, either directly or through an intermediary, additional reporting requirements may be triggered. As you prepare Form 990, gather all Schedule K-1’s the nonprofit is in receipt of. These documents detail where funds were invested and should include statements that describe the level of foreign activities.
When a performing arts organization holds foreign investments, it may be required to file either Form 926 and Form 8865. Exactly which forms you need to file is dictated by the type of entity the funds are invested in. Generally, if over $100,000 in cash is invested in a foreign corporation or partnership, international tax reporting requirements are triggered.
If the disclosure relates to a non-cash asset, there is no threshold––nonprofits must report it. Larger performing arts organizations can see upwards of 20 or 30 of these disclosures annually. In some scenarios, these may result in organizations having to pay Unrelated Business Income Tax (UBIT).
Performing arts organizations frequently encounter issues reporting foreign investments because of a lack of communication between investment committees and those preparing Form 990. To avoid this, all stakeholders should have visibility into the nonprofit’s investments and easy access to any documentation.
As global institutions, many performing arts organizations will hold cash in foreign bank accounts. While these funds are not subject to tax, they must be disclosed in accordance with FinCEN reporting requirements. If the bank account exceeds $10,000 at any point during the year, it must be disclosed.
Key information to include in these disclosures includes the location of the funds, the highest cash balance throughout the year, and the identity of individuals with signature authority on these accounts.
From a tax perspective, performing arts organizations are complicated entities. When international tax reporting requirements are triggered, the complexity is only exacerbated. And if organizations are non-compliant, the penalties can be steep, potentially starting at $10,000 per form. To ensure full compliance with all applicable regulations, it’s important to partner with an accounting firm that’s well-versed in the intricacies of arts and culture nonprofits.
At Smith and Howard, our specialized arts and culture practice has a wealth of expertise navigating international tax reporting requirements. When you partner with us, you’ll enjoy access to a friendly team with real domain expertise in your sector, paired with a robust process that ensures your nonprofit satisfies all reporting requirements.
Our team collaborates closely with executive leaders to produce financial statements and filings that accurately portray the financial activities of your nonprofit. With extensive experience in the nonprofit sector, our dedicated team of CPAs serves as a trusted partner that helps you plan for the long-term financial strength of your institution.
To learn more about Smith and Howard’s tax services for performing arts organizations, contact us today.
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