Tuesday, July 6, 2010

409A Hits Hollywood Workers

Payment amounts deferred and based upon future box office receipts - independent contractor exception to no avail - READ HERE

"The basic problem is that many service providers in the entertainment industry will not qualify under Section 409A’s exclusion for “independent contractors.” In the entertainment industry, agreements often require the talent to provide services in one year in exchange for compensation in a later year based on box office receipts. Absent compliance with the strict requirements of Section 409A, the talent might be required to include income in the year he acted rather than the year he was paid (assuming the payment is not subject to a “substantial risk of forfeiture”). To go one step further, suppose the motion picture is widely successful, leaving the audiences clamoring for a sequel. The actor might then renegotiate his agreement with the production company for a bonus against the contingent payments to be paid under the original agreement. In essence, the movie star has renegotiated his rights to future earnings and accelerated his receipt of amounts previously earned and deferred. Section 409A punishes this type of renegotiation."

Thanks to Roger Royse, Esq.

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