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 email@example.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.
A while back a lot of movies were being filmed in Canada. Was it the pristine arctic air? Perhaps the free flowing Molson Lagers? No, it was for the more traditional reason of saving money. In 2004, the United States government with a lot of help from the powerful Hollywood lobby passed into law the American Jobs Creation Act of 2004. Within the Act lay the somewhat ambiguous and benign Section 181.
Section 181 was the government’s response to what had become known as Runaway Productions; American produced movies filmed on foreign soil. Section 181 allowed film makers to entice investors with incredible federal tax incentives. An investor who invested his money in a film production which was primarily (75%) filmed and produced in the United States could write off every dollar that was spent on the movie in the year in which it was spent as a tax deduction against his or her passive income. If you are still reading, several questions are probably popping up, such as: What does any of this mean? Why would a musician care? or Who has any money to invest?
Fair questions. What Section 181 means is that while the rest of the once upon a time “safe” investments, like the stocks and real estate, are hemorrhaging money, movies actually are thriving. Investors are seeing great returns on their investments. Proof, Beverly Hills Chihuahua made $29 Million last weekend. I mean come on, it wasn’t even the taco bell Chihuahua. Even if your movie investment doesn’t make money, an investor is safeguarded by the handsome tax breaks of Section 181. Meaning, the tax deduction an investor can take guarantees a certain rate of return regardless of the movies commercial success.
Why would a musician care about this? Well, as I have written in the past, Section 181, as well as the various state tax incentives, also apply to movie videos. If your band wants to make a kick ass video to air on MTV2 or to virally link to your facebook, myspace, ning, youtube, and personal webpage but don’t have the coin to pay for the crew and equipment, entice your grandfather with the benefits of 181. Seriously, if handled correctly and accounted for in the right manner, the tax benefits may cover more than 50% of the costs of the video.
Why am I writing about this now? A couple of reasons. First, Section 181 was set to expire on December 31, 2008. Consequently, if you want to capitalize on the tax breaks you need to have a film/video budget complete as well as shoot one day of principal photography by the end of the year. The second reason is that the House of Representatives in addition to trying to solve the financial crisis, recently passed H.R. 7060 which, in addition to extending a number of other tax incentives, extended Section 181 of the 2004 American Jobs Creation Act from December 31, 2008 to December 31, 2009. The bill is alas, still just a bill and must pass the house and be signed by the lame duck President to be effective, but its a positive start. Follow its progress here: http://www.govtrack.us/congress/bill.xpd?bill=h110-7060. If you don’t remember how a bill becomes a law, I’ve embedded a very helpful video at the top!
Whether it passes or not, you will need the help of a lawyer and accountant to take advantage of the tax benefits. Sounds like a pain, but not as much of a pain as shooting your video on your flip phone and using your flash light to create a mood.
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