Posted 12 October, 2008 in FilmUSA
U.S. SECTION 181 The Federal Bail-out Plan has extended the sunset of this program for another year, until December 31,2009.
The extenders bill that passed Congress and signed on October 3rd by the President includes the following modifications to the film production incentives under section 181 and section 199.
Modifications to Section 181
1) Section 181, which was scheduled to expire with respect to films commencing after 2008, was extended for an additional year. Thus, the benefits of section 181 apply to the cost of any qualifying film and television production commencing before 2010.
2) Under prior law, the expensing benefits under section 181 generally only applied to films that cost $15 million or less to produce. Thus, because the cost of most films exceeds $15 million, the benefits of section 199 were generally limited to television production. The bill eliminates the eligibility cap on the amount of production costs. Rather, under the bill, up to $15 million of production costs may be immediately expensed under section 181($20 million in the case of production in certain low-income communities or distressed areas), regardless of the aggregate cost of the film. The remaining cost of the film would be recovered under the taxpayer’s normal amortization method (e.g., income forecast).
Modifications to Section 199
1) For purposes of section 199, a “qualified film” would include the copyrights, trademarks and other intangibles with respect to the film. Thus, income from the license of copyrights and trademarks relating to a qualified film would be eligible for the section 199 production benefits.
2) The bill favorably modifies the treatment of certain film production partnerships and film distribution partnerships. First, if a partnership produces a film, the bill would treat any partner that has at least a 20 percent ownership interest in the partnership as a “producer” of the film for purposes of section 199. Thus, the income earned by such a partner from its distribution of a qualified film produced by the partnership generally would be eligible for benefits (as DPGR) under section 199. Similarly, the bill would allow income earned by a partnership from distributing a qualified film to be eligible for section 199 benefits, if a partner having at least a 20 percent interest in the partnership produced the film. Thus, the bill generally overturns Treasury regulations holding that production activities of a partnership could not be attributed to a partner, or vice versa.
3) For purposes of the TIPRA wage limit to section 199, the definition of W-2 wages was changed to include any compensation for services paid to “actors, production personnel, directors and producers.” This change was made to reflect the fact that workers in the film industry may provide services in a capacity other than as employees (e.g., as independent contractors or thru loan-out companies, payroll companies or other arrangements) and thus are not paid “W-2 wages” for such services.
4) The bill specifies that the methods and means of distributing an otherwise qualified film do not impact its eligibility under section 199. Thus, according to a technical explanation of the provision (previously released by Joint Tax), the distribution of a film or programming over the internet (i.e., digital programming) or on broadcast television would be treated as a disposition for purposes of section 199. Thus, the advertising and other income attributable to any such distribution of a qualified film should be eligible for section 199 benefits.
Section 502c)(2) amends IRC section 199(c)(6), which defines the term “qualified film.� The additional language broadens the definition of a “qualified film� to include “copyrights, trademarks and other intangibles.� This in turn broadens the scope of “domestic production gross receipts,� in section 199(c)(4((A)(i)(II), increasing the amount of “qualified production activities income� (section 199(c)(1) against which the 9% (phased in) deduction is allowed under section 199(a).
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