Case 5.Income Sourcing - International Tax (Advanced)

Hidetoshi was a world-renowned rock star from NewCountry. Sony-USA Records contracted with Hidetoshi to produce records. Sony-USA Records retained all intellectual property rights in the recordings. The contract granted Hidetoshi payments or "royalties" based upon future sales of recordings. Hidetoshi paid taxes on the payments in NewCountry as royalties. The U.S.-NewCountry treaty exempts royalties from tax in the U.S. However, NewCountry tax treaty, did not define royalties or compensation for personal services.The IRS has told Hidetoshi, his contract with Sony-USA generates personal service income in the United States. Advise Hidetoshi.

--Need tax memo that states Code for answer