IRC Section 181 - IRC
181 - Income Tax Deduction
When the U.S. film and television
industry realized the extent to which "runaway production" was affecting
the industry, they began seeking federal legislation incentivizing U.S.
production. Those efforts eventually led to the passage of Internal
Revenue Code Section 181, contained in the American Jobs Creation Act of
2004.
On October 22, 2004 the American Jobs
Creation Act of 2004, which amends the Internal Revenue Code of 1986, was
signed into law. The congressional committee statement indicates the
purpose of the bill is to "remove impediments in the Internal Revenue
Code…and make our manufacturing, service, and high-technology businesses
and workers more competitive and productive both at home and abroad….".
The Act
creates three income tax deductions
expressly applicable to motion pictures, one of which - IRC section 181 of
the Internal Revenue Code – is especially significant to independent film
producers.
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Overview of New IRC
Section 181 Income Tax Deduction.
Section 244 of the Act, entitled "Special
Rules for Certain Film and Television Productions," adds a new section,
Section 181, to the Code subpart "Itemized Deductions for Individuals and
Corporations."
Section 181, entitled "Treatment of
Certain Qualified Film and Television Productions," gives the taxpayer an
election to deduct, in the year the expenses are incurred, the costs of
any "qualified film or television production."
The new rules are in effect as of the
date of enactment, October 22, 2004, and are applicable to qualified
productions commencing before 2009. Section 181 has three principal
limitations on this incentive: a dollar limitation of $15.0 or $20.0
million; the production must be a "qualified film or TV production"; and
an exclusivity of the deduction/amortization.
Dollar Limitation. The income tax deduction election does not apply
to any qualified film which has an aggregate cost greater than $15.0MM.
The dollar limitation is $20.0 MM for any qualified film "the aggregate
cost of which is significantly incurred in an area eligible for
designation as "an IRC 45D" low income community" or a Delta Regional
Authority "distressed" county or areas.
Qualified Film or TV Production and Qualified Compensation. The section
181 income tax deduction election is only available to "qualified film
or television productions," defined as any production within the dollar
limitations described above, in which 75 percent of the total compensation
of the production is "qualified compensation." In addition, the new IRC
section expressly indicates that, for television series, only the first 44
episodes may be taken into account and qualify for the deduction election.
Sexually explicit productions subject to 18 U.S.C. 2257 are not eligible
for the section 181 income tax deduction. |