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IRS eliminates tax breaks for some independent films

3 years ago, partially in response to runaway production, Congress developed tax incentives which gave independent filmmakers tax breaks on films up to $15 Million. In a ruling earlier this month, the IRS imposes new requirements that will eliminate this incentive for many independent films

Under th American Jobs Creation Act of 2004, domestically made films budgeted at under fifteen million dollars were able to take advantage of several tax breaks. Under the Act, filmmakers could write-off the entire cost of a movie during the year of its production, if the budget was below the $15 million threshhold. As written, the provision excluded future participations and residuals from the $15 Million budget figure.

Now, the IRS has ruled that these P&R payouts must be included in the budget, in order to prevent producers from manipulating the productio cost figures by re-characterizing regular compensation as participation and/or residuals, in order to stay under the $15 Million mark.

Congressional staffers who worked for years on the bill in question were incensed by the ruling, which will become final in a few weeks. Now, in order to give the intended effect to the law, Congress will have to pass new legislation to restore the tax incentive.

3 Responses to IRS eliminates tax breaks for some independent films

  1. UPDATE:

    I’ve now had occasion to research this, and it appears that congress DID act to extend the legislation to cover films which begin production before January 1, 2010. The extension also applies to the FIRST $15 Million of ANY qualifying production, not just to films UNDER $15 Million.

    Good news for keeping films here in the U.S. during these troubled economic times.

  2. I hadn’t heard that, nor have I researched the question.

    Best advice is consult a lawyer about this before relying on any purported tax break

  3. Is this IRS regulation in effect? I heard that during the recent Bail Out legislation it was reinstated so that once again you can get the 15 million write off. Is that true?

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