So the suggestion is that buskers during a festival should be expected to give some unspecified part of their takings to the festival?

Seems pretty fair. I'd imagine the folkie crowd would only be there to provide the takings because there's a festival - and I'd suspect a lot of people wold assume that the busking was a fundraising effort anyway.

That IRS threat sounds a bit out of order - but surely it'd be a bluff? Pretty hard to prove anything, even if the Revenue were particularly interested. And going on record as promising not to report buskers who gave them a cut of the takings would appear to put the organisers in a pretty dodgy legal position anyway.