Quote:
Originally Posted by joefromchicago
The clauses in the "personal services" contracts that treat the wrestlers as independent contractors are almost certainly illegal and unenforceable. I doubt, however, that the IRS would be interested in them, as the wrestlers should be paying their payroll taxes and the IRS doesn't really care who pays those taxes as long as they get paid. Of course, I believe the WWE is committing tax fraud by having its employees pay the taxes that it should be paying, but that's not the sort of thing that the IRS is going to get excited about unless there's a big controversy.
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This is the difference between the US and any country that has a broad, universal national social security program that every employee has to be registered in and has to pay contributions into. Going by what I know best - I happen to make a living by doing taxes and accounting, and I used to do payroll, too, under German law - there is a profound difference whether any performer is hired as an employee or a (phony) contractor; for every employee the employer has to withhold and pay wage taxes, as well as withhold and pay social security contributions out of their salary as well as another amount on top, which is the employer's share into the social security funds. None of this applies for contractors.*
If the WWE would operate like this in Germany and treat their wrestlers as contractors, they will inevitably run into a regular audit by the federal pension insurance (Deutsche Rentenversicherung Bund), which happens every four years at least. If the tax authorities audited them first and uncovered those phony contracts, they would just refer them to the DRB anyway. There is no way the scheme stands. In a DRB audit, they will requalify the payments to the performers as salaries, and then charge social insurance contributions for it, and then refer the entire file back to the tax authorities, who will charge tax, too.
Now, the fine thing is this: if you pay that "independent contractor" say, 5k a month, the audit will see that requalified as the net payment. It is the balance *after* tax and social security, and they will usually get the worst wage tax treatment for reasons of procedure (there is no wage tax class associated with the performer) and the fraudulently operating business will be struck not only with taxes and contributions (which they can not move along to the "contractor") on the basis of 5k, but on the basis of easily twice that amount, plus interest and fines.
But as you say, the US IRS likely does not care all that hard about who pays the tax as long as someone does, and there is probably but puny money to be made from social security contributions… in Germany, there is a certain effort made to strike down schemes like this, and there have been cases where entire companies have been brought down when they employed these schemes systematically and then were hit by seven-figure bills in back taxes etc.
*There are exceptions too irrelevant to the story to go into.