from Variety
Section 181 was enacted in 2004 and written to sunset at the end of 2008.
The recently signed tax bill represents its second extension and it’s now
scheduled to be on the books until the end of 2011. The most recent
extension is retroactive to the beginning of this year, so it applies to
projects that began principal photography on or before Jan. 1.
New tax bill extends film, TV incentive
Provision allows immediate deductions for certain expenditures
By Peter Caranicas
When President Obama signed the $858 billion tax bill into law Friday, he
extended a significant federal tax incentive to film and TV producers.
The tax law contains a provision that reinstates Section 181 of the Internal
Revenue Code — the so-called runaway production incentive — which allows
producers to immediately deduct the cost of qualifying expenditures in the
year they occur rather than having to spread or amortize those costs over a
period of years after the film goes to market.
The deduction applies to the first $15 million of qualifying production
costs. The amount rises to $20 million if the project’s aggregate costs are
“significantly incurred” in areas eligible for designation as a low-income
community.
The incentive is elective, which means that producers can run the numbers to
decide whether to expense the production costs in the first year. The
election needs to be filed with the project’s tax returns.
Section 181 covers TV as well as film productions. “For television it
applies to $15 million or $20 million per episode, with a maximum of 44
episodes, which is huge,” said Corky Kessler, an entertainment attorney with
Deutsch, Levy & Engel. “A lot of companies don’t know this. They’re throwing
dollars away.”
Some conditions apply. “Seventy-five percent of the service wages in your
budget have to be performed and paid in the U.S.,” Kessler said, “but they
don’t have to be paid to U.S. citizens.” In addition, sexually explicit
content doesn’t qualify.
Kessler, who specializes in advising producers on the ins and outs of
Section 181, will participate in an incentives panel at the Sundance Film
Festival. He stressed that Section 181 can be combined with state and local
incentives to achieve significant savings. “I tell investors they can have a
recovery potential of 50¢-77¢ on every dollar when they combine the benefits
of state and federal,” he said.
Section 181 was enacted in 2004 and written to sunset at the end of 2008.
The recently signed tax bill represents its second extension and it’s now
scheduled to be on the books until the end of 2011. The most recent
extension is retroactive to the beginning of this year, so it applies to
projects that began principal photography on or before Jan. 1.
“The revived Section 181 applies to films produced in 2011 and applies as
well to films produced in 2010,” said Bernard C. Topper Jr., an attorney
with Frankfurt Kurnit Klein & Selz. “Filmmakers who produced a film in 2010
should not overlook this tax benefit and should check the filing
requirements now that must be met to qualify for 181.”
“Given the aggressive efforts by other countries to attract film productions
with tax incentives, the extension of Section 181 should help keep
production jobs in America,” said another Frankfurt Kurnit Klein & Selz
attorney, Thomas Selz, who heads up the firm’s entertainment group.
Films are never totally finished……
….. they just get a release date!
