Tagged: Section 181
Hot Topics in Music and Film
The hangover from SXSW has subsided and deals are actually getting done in the world of both music and film. There are several hot topics which are been written, blogged, tweeted and plain old talked about in the music and film industry. Over the next several entries we will try to explore several of those topics.
A new contributor to L4M, Mr. Eric Malnar will update everyone on the public performance royalties debate that is garnering attention from the House, Senate, White House and musicians all over the world. We will also explore what is a standard 360 deal these days and continue to share our experience of working with musicians (both label musicians and independents) in the ever changing industry.
On the film front; just when I thought it was safe to celebrate the passage of Section 181…President Obama seems to have lost the legislation somewhere between health care reform and his next pack of Camels. We are still waiting for his signature on H.R. 4213 and eager film makers are anticipating the one year extension that should have come on January 1, 2010. In other film news, state tax incentives are ever changing so we will try to keep you up to date on the best places to film. Plus, we will walk the newbie film maker through the process of raising funds for an independent movie by explaining all of the paper work (stupid lawyers) that is necessary before you can even accept a check from your mom.
SHAMELESS SELF PROMOTION OF THE WEEK:
One thing I take a lot of pride in is introducing talented people to other talented people. As a lawyer for creative people, I am able to make introductions to some gifted artists which then results in some pretty cool stuff. I always tell my clients to view us as a resource; whether it is introducing managers to artists, labels to artists, licensing companies to advertisers or musicians to other musicians, our clients end up with the same contacts and connections as we have.
Possibly the best example is this song. Our clients, Database, French Horn Rebellion and Hey Champ collaborated to bring you a Remix of Beaches and Friends. The song is doing great on a worldwide level. Enjoy:
HALLELUJAH!!! SECTION 181 PASSES THE SENATE!!!
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.
Section 181 Renewal On Hold (Temporarily)
Thanks to my readers and an exhaustive search of government web sites, it appears that the time frame for passing the Tax Extender Act of 2009 has been…extended. The United States Senate Committee on Finance issued this statement on December 22, 2009: CLICK HERE.
Thanks in large part to the extensive health care reform debate, this important piece of legislation, which contains a one year extension of Section 181, will have to wait until 2010 for a Senate vote. The statement indicates that the Senate hopes to have a “seamless extension” for important tax benefits. So, while we cannot quite exhale yet, it is a bit of a relief to know that the Senate is still planning on picking up where the House of Representatives left off. It is not clear if there will be any gap in coverage for qualified films, but the indication from this statement is that there will not be any issues for films which have not or will not begin production in 2009.
As always, stay tuned…
Special thanks to Joe Gold for the heads up. http://www.goldcapfilms.com/
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:
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:
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
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 firstname.lastname@example.org.
*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?
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.
Section 181 Update: Know It, Remember It and Love It
I would wager that not many film makers and musicians have the ability to quote tax law to business partners or potential investors. Understandable as most lawyers cannot do it either. However, if you are a film maker or music video producer, Internal Revenue Code Section 181 is the tax section to know, remember and love.
I have written articles and blog posts on the benefits of Section 181. (Here they are again for your perusal: Why Don’t Use It? and the Joys of Section 181). As with most of the tax code, Section 181 is not crystal clear and its drafting style leaves much to be desired. Consequently, the articles I have written and others out there in the blogosphere have sparked a lot of conversation and questions.
So in an effort to help out my readers and try to answer some questions, I went right to the source, the IRS. Out of respect to the nice and informative IRS representative that I spoke with, I am not going to reveal his/her contact info (the IRS gets enough enraged callers on a daily basis). However, rest assured that this rep is THE person in all of the IRS to talk to regarding both Section 181 and Section 199 as they relate to investments in film and the available tax credits.
The first question I asked is one that has been posed to me on several occasions: Will Section 181 be renewed at the end of 2009? The IRS answer (ALL QUOTES ARE PARAPHRASES OF OUR CONVERSATION): “We have no solid answer one way or the other; BUT, with all the stimulus packages out there and the states extending their own tax incentives, we would not be surprised if Section 181 was renewed again.” The IRS pointed to the end of the year scramble last year to get Section 181 renewed for 2009. Chances are the renewal will again be packaged with other legislation and presented to Congress near the end of the year.
Keep this in mind if you are planning to begin filming or production at the end of 2009; as long as you start principal photography and have a comprehensive budget in 2009, the credit will apply to the entire production even if it carries over to 2010. I would not recommend that you procrastinate until December 31, 2009 to start shooting, but a good fact to keep in mind.
The next question I had was another common question asked by readers: How “active” does an investor have to be to take a Section 181 tax credit against active income? The IRS answer: “It depends.” There is no cut and dry rule as to the extent that an investor must be active in the production of a film. The analysis will be fact based; common sense will apply. If you have an investor who comes on set once to puff out his chest and eat Craft Services, he likely will not qualify as an active participant under Section 181. If you simply give an investor a title like Co-Executive Producer, but she never even read the script and lives in Nova Scotia, she will not qualify as an active participant. If however, you keep your investor involved in the production and he actually has the ability to provide feedback and advice, he may qualify as an active participant in the production.
Finally, I asked the IRS: Does it matter if an entity invests in a film and applies of the credit? The IRS answer: “No.” If done correctly and with the aide of a competent accountant, an entity (limited liability company, corporation, trust, partnership) can invest in a film project and apply for the credit.
Keep in mind, an investor must actually need Section 181 for it to make sense. If there is a year where a passive (non-active) investor does not have any passive income coming in (which is probably the norm these days), the tax credit does no good. Think of it this way, if you have $0 in tax liabilities for 2008 and you invested $50,000 that year, the IRS is not going to simply write you a check for the $50,000 you invested in the film. You must actually OWE money to take the deduction.
If you are looking for more help in the area, there are some other great posts out there. Check out “Minimizing Investor Risks Through Film Subsidies” by Justin Evans.
Remember of course, that you should ALWAYS consult an attorney and accountant before offering investment opportunities to potential investors. The law in this area is confusing (obviously), so hire an expert to help you on the way.
SHAMELESS SELF-PROMOTION OF THE WEEK:
The folks over at Bandit Productions, specifically Nelson Colon II have dropped a really cool project with Freebass 808. Check it out here: http://battalionarmour.com/moonbass/