Prince v. the IRS. Also, v. the French Government

Prince
Photo by Scott Penner. CC BY-SA 3.0

Probably the apex of my listening to Prince was my freshman year of college, where I thrilled to his virtuosity, to his funk, and to the way it flummoxed other music majors when I told them that I’d spent the morning listening to Prince. (I also got into at least one BBS argument about whether Prince could play jazz if he wanted to; I argued, naturally, that he could.) Though I’ve only listened to him occasionally since, he holds a special place in my heart and in my ears.

Yesterday, when I read that he’d died, my first thoughts were memories of my freshman year. Like any right-thinking American, my next were whether he’d ever had any significant interaction with the tax law.

A quick search answered that: he did!

In 2009 and 2010, Prince apparently played a number of shows in France. The French government believed that he hadn’t paid taxes (or, at least, hadn’t paid the full amount of taxes he owed) on his income from those concerts.

Which leads us into the interesting world of the international taxation of entertainers:

Why Did Prince Owe French Taxes in the First Place?

Basically, because he performed there. As a general rule, nonresidents of France are nonetheless taxable on their French-source income. And income from performing concerts in France is French-source income.

Of course, the U.S. and France have an income tax treaty. And under the treaty,[fn1] a U.S. citizen (such as Prince) who performs services in France will only be taxable on the income from those services in the U.S.

Except.

Except that the treaty has an “Artistes and Sportsmen” clause.[fn2] And under that clause, performers such as Prince are only exempt from French tax if they earn less than $10,000 during the taxable year. Given that it cost between $1.5 and $2 million to book Prince for a show, he probably didn’t stay under the treaty ceiling.

But This Was a French Thing; Why Was the IRS Involved?

As a general rule, the IRS doesn’t help other governments collect taxes. In fact, there’s an old common law doctrine called the “revenue rule” (which I’ve written about a couple times, here and here) that says the U.S. government will not help other governments collect their taxes.

Under the U.S.-France treaty, though, the U.S. has agreed to collect and exchange at least some information that would be relevant to France’s administration and enforcement of its tax laws. And France apparently invoked that part of the treaty; the IRS requested information from Prince, who, for whatever reason, did not provide that information.

So the IRS filed a petition to enforce that summons,[fn3] so that it could provide France with the information France requested so that France, in turn, could determine how much Prince owed in French taxes.

Ultimately, Prince may be remembered for “1999,” or for “Kiss,” for Purple Rain or for the Batdance or maybe for his contractual disputes that led to his changing his name to Prince logo.svg. He probably won’t be remembered for taxes. After all, he broke ground musically and aesthetically, while there was nothing groundbreaking about his run-ins with the tax law. Still, his experience with French taxes provides a great illustration of some of the potential pitfalls of being an iconic international figure.


[fn1] Article 14.

[fn2] Article 17.

[fn3] That petition is available on Bloomberg Law and (I assume) PACER. The case (which never went to trial) is United States v. Nelson, case 0:12-mc-00071-DSD-JSM, filed on Sept. 17, 2012, in the U.S. district court for the District of Minnesota.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s