Category: Section 181
HALLELUJAH!!! SECTION 181 PASSES THE SENATE!!!
We can all be like Kool and the Gang and C-E-L-E-B-R-A-T-E- good times, come on.
More than three months after the House passes a version of the Tax Extender Bill of 2009 (HR 4213), the Senate got off its collective rear end and passed a modified and heavily pork filled version of the Bill today. By a vote of 62 to 36 this persistent piece of legislation made it one step closer to becoming law (remember it still needs the President’s signature). Of importance to all of us, the Extender Bill contains a one year extension of Section 181. All film makers and investors may now breathe a collective sigh of relief.
Now that the extension is a whisker away from becoming law, all you film makers can start approaching investors and their confused accountants to tout the extradorinary tax incentive that is Seciton 181. Remember the tax dedcution that 181 offers is against passive income (although there are subtle nuances that allow active investors to take the deduction against active income). Also, musicians, videographers, web casters, 181 can be used for all qualifying films; which is to say it is not just for feature length films.
We at L4M routinely work with film makers in planning and drafting their film investment documents. Now with the help from our intrepid Senators, we can once again add language to these documents regarding Section 181 (and State tax credits) that make film investment a bit more attractive.
Now that 181 has passed, stay tuned for other development in film and music law. Thanks for reading and for all of your input.
Senate to Discuss Section 181 Extension
The Senate is set to get back to work on Tuesday, January 19, 2010. After the MLK holiday, the Senate Finance Committee, based on its press release and the staffers’ opinion, the Tax Extender Bill will be debated. Of ultimate importance to film makers, the proposed extension of Section 181 is one of the extensions contained within the Bill.
It is unclear what portions of the Bill or if the whole Bill will be adopted, debated, amended, etc. We all must continue to have the patience we have had for the last several months while our government “springs” into action.
As always, stay tuned. I’ll try to post as soon as I hear one way or the other.
Extension of Section 181 Passes House!
The Tax Extender Act of 2009 passed a vote of the House of Representatives yesterday. Buried in the tax extension legislation is the renewal for one year of Section 181. The official text is as follows:
Section 117 SPECIAL EXPENSING RULES FOR CERTAIN FILM AND TELEVISION PRODUCTIONS.
(a) In General – Subsection (f) of section 181 is amended by strking ‘December 31, 2009’ and inserting ‘December 31, 2010’.
(b) Effective Date- The amendment made by this section shall apply to productions commencing after December 31, 2009.
Representative Diane E. Watson is taking credit for introducing the bill under her proposed H.R. 3931. Read her press release here. Regardless of who is responsible, the noose just got considerably looser for those film makers trying to attract investors to put money in their films which were not ready for production in 2009. Similar to last year, this 11th hour extension looks like the much needed amnesty for many film makers.
Please continue to check in to see the progress of the Extender Act through the Senate and the White House. While it is not law yet, we are definitely getting there.
Section 181 Extension Bills Are Here: HR 2720/3931!
As predicted, Section 181 is back on the front burner now that the House passed a Health Care reform bill. HR 3931 and HR 2720 have made their way from introduction to Congress as Bills to the House Ways and Means Committee.
HR 3931 seeks to extend 181 until the end of 2011. HR 2720 goes well beyond a 2 year extension and looks to make 181 a permanent tax incentive for qualified films.
Obviously the Bills will have to move swiftly to make it to a vote before the end of the year, but this is great news for those film makers who were not quite ready to start a production in 2009.
HR 2720 is simple and straight forward (not part of a large extender Bill (yet)). Here is the text:
A BILL
To amend the Internal Revenue Code of 1986 to make permanent the election to treat the cost of qualified film and television productions as an expense which is not chargeable to capital account.
SECTION 1. EXPENSING OF QUALIFIED FILM AND TELEVISION PRODUCTION COSTS MADE PERMANENT.
HR 3931 is also quite straight forward:
A BILL
To amend the Internal Revenue Code of 1986 to extend for 2 years the election to treat the cost of a qualified film or television production as an expense which is not chargeable to a capital account.
SECTION 1. EXTENSION OF TREATMENT OF CERTAIN QUALIFIED FILM AND TELEVISION PRODUCTIONS.
(a) In General- Subsection (f) of section 181 of the Internal Revenue Code of 1986 is amended by striking ‘December 31, 2009’ and inserting ‘December 31, 2011’.
(b) Effective Date- The amendment made by this section shall apply to qualified film and television productions commencing after December 31, 2009.
Follow the success (hopefully) of the Bill here and on http://www.govtrack.us/congress/bill.xpd?bill=h111-2720 and http://www.govtrack.us/congress/bill.xpd?bill=h111-3931
Music readers, this bill applies to you. Money spent on a qualified music video (even internet productions) can qualify for the tax incentive under 181. Search my site for other articles about Section 181.
How to Grandfather Under Section 181
Better start filming!
As the deadline for Section 181 quickly approaches, I have received a bunch of questions related to “grandfathering”. The statute itself does not provide a bright line answer, so I went to the source, the IRS.
According to one of the authors of the film incentive, in order to grandfather under Section 181 and have your film qualify even if you do not complete it until next year, you simply need one true day of principal photography. One full day with a director, lighting, cast, etc. should do the trick. If you have that one day and your film qualifies under the other requirements of 181, you will still be able to utilize the incentive.
This is great news for those film makers out there that are just about ready to start shooting and have not quite completed their money raise for a film. If the incentive is not renewed (it is set to expire at the end of this year), a film that qualifies in 2009, will still be able to offer the incentive to investors who invest in 2010.
In other 181 news, it appears that the section may have found its way onto a couple of extender bills. According to the IRS, there may be a couple of bills out there that include an extension f the incentive; one for 2 years and one which would make it permanent. Again, this is just speculation, but rumors in Washington D.C. sometimes come true.
I have begun to work with film makers on their private placement offerings or addendum to their offerings to include an opinion on this grandfathering issue. If you are interested, please feel free to contact me at jkaplan@stahlcowen.com.
*As with all my posts, this post is for information purposes only and does not constitute legal advice. I am not your lawyer and you may not rely on the content of this website as though I am your lawyer.
Section 181 Back on Track???
Only time for a quick update folks. Now that the Health Care proposal is out of the House and on its way to the Senate, the tax folks have more time (although not that much more time) to focus on tax incentives and credits that are set to expire at the end of this year. For our purposes Sections 181 and 199 are really the only one matter.
According to a staff tax attorney at the Ways and Means Committee, the focus has been shifted and if Section 181 has a chance of renewal or extension, it will occur in the next two weeks. Please note that even if the renewal of Section 181 is proposed in the next week, there is no guaranty that the bill which carries the renewal proposal will pass. To that point, you will not see a renewal of Section 181 in a proposal by itself. Any renewal of the film incentive statute will be included on a larger and broader “Extender” package introduced to Congress before the end of the year.
So, I suppose this is good news. However, if you can get started on your films, do it now or forever hold your peace!
Will Section 181 be Renewed?
Does Charles Rangle know if 181 will be renewed?
As most independent film makers know, Section 181 is set to expire on January 1, 2010. The tax incentive has been an incredible tool for US film makers attempting to lure investors and their money offering deductions against passive (and in some cases active) income. First introduced as part of the American Jobs Creation Act in 2004, the incentive was first set to expire on December 31, 2008. The stimulus bill or the American Recovery and Reinvestment Act breathed new life into Section 181, albeit only for a year.
So what is the plan for the film incentive?
Great question. I’ve done all the research that one man can do and I still do not have an answer. According to a source at the IRS who is an expert on the film incentive sections (181 and 199), he would not be surprised if an extension was slipped into a bill much like it was in 2008. However, he has no real basis for that opinion and urged me to just keep watching the government’s proposed bills for updates.
The committee that is in charge of introducing tax incentives is the Ways and Means Committee. I spoke to one of their tax lawyers to get her perspective. Not surprisingly, she 35, 55, 61 told me that their entire attention was on health care reform. She mentioned that if a health care reform bill was presented in the next month or two, they would probably turn their attention to tax incentive bills that are set to expire. However, she also cautioned me that, due to the economy, proposals for reducing the overall tax collected by the government are not exactly in favor.
Bottom line, there is no answer to report yet. Continue to check here, your local film office and government websites for updates. Call your representative and keep on them.
If you are planning on beginning filming in early 2010, all I can say is try to start in December. If you begin filming in 2009, you may qualify for the incentive even if you do not complete filming until 2010.
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