Rev. Rul. 60-249

Advice has been requested whether a winner's purse received by a nonresident alien indicidual from the entry of a horse in a race in the United States is subject to the withholding of income tax even though the winnings may be exempt from Federal income tax under a tax convention.

Revenue Ruling 58-63, C.B. 1958-1, 624, holds that a nonresident alien individual does not acquire a permanent establishment in the United States by entering a horse in a single race in this country. Although a winner's purse received by the owner of a racing stable operated for profit is considered to be commercial profits, the winnings concerned in that Revenue Ruling were held exempt from Federal income tax under the United States-France Income Tax Convention, T.D. 5499, C.B. 1964-1, 134, because the nonresident alien, a citizen and resident of France, did not have a permanent establishment in the United States.

Section 1441 of the Internal Revenue Code of 1954, with certain exceptions not here pertinent, requires the withholding of tax at the source with respect to all items of fixed or determinable annual or periodical gains, profits, or income from sources within the United States paid to a nonresident alien individual. See also Revenue Ruling 58-479, C.B. 1958-2, 60.

Although, by the entry of a horse in only one race in this country, anonresident alien does not acquire a `permanent establishment' in the United States and the winnings from the race therefore may be exempt from Federal income tax under the terms of a tax convention, a `permanent establishment' may be acquired by the nonresident alien's entering his horse, or other horses owned by him, in other races in the United States during the taxable year.

Accordingly, it is held that in the absence of definite information that a nonresident alien individual does not intend to enter a horse in another race in the United States during he taxable year, tax must be withheld from the winnings received by such nonresident alien from the entry of a horse in a race in this country, even though such winning may be exempt from Federal income tax under the provisions of a tax convention.

Revenue Ruling 58-63, C.B. 1958-1, 624, is hereby amplified to hold that, in the absence of definite information that a nonresident alien individual does not intend to enter a horse in more than one race in the United States during the taxable year, tax must be withheld from the winnings received by the taxpayer from the entry of a horse in a race in this country, even though such winnings may be exempt from Federal income tax under the provisions of a tax convention.