Agreements for the services of talent, such as actors, directors, producers, writers and so forth, frequently provide that the talent is entitled to a combination of fixed compensation in the year the services are rendered plus contingent compensation, if earned out, typically in later years.
Advances to Talent
In yet another example of the lunacy of the tax laws as they apply to compensation for personal services, it is possible that the advance payment made to talent might be subject to a 40% penalty ' 20% under Sec. 409A of the Internal Revenue Code of 1986, as amended (IRC), and 20% under the laws of those states, such as California, that have conformed to Sec. 409A. This could push the effective marginal tax rate on the advance to over 80%. Needless to say, this result is disastrous, and extreme care must be taken not to run afoul of the rules.
By
Robert M. JasonThis premium content is locked for LawJournalNewsletters subscribers only
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