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Will Shutdown Effect Film Industry? RE: Federal Gov't - Section 181

From: Susie L.
Sent on: Friday, October 4, 2013 11:00 PM
Picture By now, we've all heard about the bickering little bastards in D.C. shutting down the government.  But did you know it's having an affect on the film industry? 

Any seasoned Producer will tell you about the wonderful benefits of the IRS code known as Section 181.  And these same Producers will tell you that this very important piece of legislation is due to expire at the end of this year, unless Congress acts to extend it.

For those unfamiliar with Section 181, let's start with an overview of what it is and then define the problem:
SECTION 181 OVERVIEW Congressional enactment of Section 181 of the Internal Revenue Code in 2004 marked an unprecedented change in U.S. tax policy toward the film and television production industry. (See Internal Revenue Code, 26 U.S.C § 181)

This amendment to the Tax Code came about as a result of the phenomenon known as "Runaway Production" in the film industry. Hollywood, like many other American industries, had grown tired of high labor costs and taxes in the United States. Industry leaders looked abroad for ways to cut costs.

The heads of several foreign governments saw the huge financial benefit from film and television production and began luring such production out of the United States. Of course, when production left the country it took production dollars along with it.

Congress reacted by enacting Section 181 of the Internal Revenue Code, offering tax incentives for investors in independent film and television productions produced within the United States. The incentive offered to investors by Section 181 is enormous.

Most importantly, however, Section 181 and the tax benefits it offers are scheduled to expire December 31, 2013.


You’ve heard of farm subsidies. Did you know there were subsidies for the film industry too?

In 2004, Congress created subsidies for the film industry by enacting Section 181 of the Internal Revenue Code (Also known as Film Tax Incentives Act). Put simply, Section 181 provides that an investment in a motion picture filmed in the U.S. is 100% tax deductible for the investor in the same year invested.

Under Section 181, an investor may deduct all of the money invested in a film or television production from his or her passive income earned that same year. If the investor is actively involved in the operation of the production, he or she may deduct the amount of the investment from all active income earned in that same year. Productions with budgets under $15,000,000 (in some cases up to $20,000,000) that have at least seventy-five percent 75% of production completed within the United States qualify for these deductions.

  • 100% of the production costs are deductible in the same year of investment
  • 75% of the motion picture must be shot in the U.S. to qualify
  • There is a $15M - $20M dollar budget cap
  • There is no minimum film production budget cost
  • TV pilots, TV episodes (up to 44), short films, music videos, and feature films all qualify for Section 181 tax benefits
  • Section 181 can be applied to active income or passive income
  • Investors can be either individuals or businesses
  • Section 181 is retroactive
  • There is no expectation for film distribution or film completion
  • The motion picture’s production studio issues a Schedule K-1 to the investor for Section 181 deductions off their individual income tax return
THE PROBLEM The problem many Producers are facing is this: investment money for film is about to get scarce if Congress doesn't extend Section 181.  Apart from the scarcity of investment, the bigger concern is the impending exodus of film production outside of the United States.  If I can get a better financial deal in Canada or Europe; why wouldn't I take my production there?  With the current law set to expire on 12/31/2013, the clock is ticking.  Congress needs to get back to work and address this very important issue.  

The good news is we have every reason to believe that Congress will (at some point) renew Section 181. But, until they do, Producers are in a frenzied scramble to secure investments over the next three months.  Even if Congress ends the current shutdown, it doesn't appear that renewing Section 181 is at the top of their 'To Do List'.  (I think I've heard something about a little thing called ObamaCare and Syria they're bickering about).  So when will Congress act?  Who knows!  But until they do it's a mad-dash for investment dollars.  

WE in the film industry need our leaders to get back to work, stop the fighting, and address issues like Section 181 before we see our industry moving North to Canada or East to France.  Let's keep Section 181 safe and film production right here in 'MERICA.  

Now join me in a chant... "USA!, USA!, USA!""

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