Film

I'm meeting with a potential new client in a week or two. She makes documentaries. I'm trying to get up to speed on the tax issues. Here is what I think I know so far:

1. Sec 181 expired at the end of last year. Capitalize costs, depreciate under income forecast method. I cannot find anything about any discussion of retroactively extending Sec 181, as they did a couple of years ago. With the bad blood between Trump and Hollywood, I'm guessing that that might not happen.

2. Film production qualifies for Sec 199.

3. Watch out for nonresident state filing requirements if she does work in other states.

4. Investigate state tax credits available to film producers.

5. In case of losses, document profit motive and wait for the hobby loss challenge.

What else? Thanks!

Section 181 is often retroactively extended.


But CA does not follow 181

Sec 199 could apply if there were a profit; but usually there is no payroll in films.
No payorll, then i believe no 1099

films often pay people as 1099.

get the llc operating agreement

and any financing agreements.

Thanks! I did not know that about CA not conforming to 181 - I should have checked that. So if 181 is retroactively extended, then we deduct costs for fed but must capitalize all expenses for CA and depreciate using income forecast method, correct?

that's correct..but not looking like 181 will be extended...i dont' hear talks of 181 anywhere.

Now film is included in the definition of qualified property, so bonus depreciation is available.

that's big...thank you for posting! now have to see what states are departing from the IRS for bonus deprec.

I should warn you... I am reading the conference agreement, not law.

I am readin the law. The word "film" appears only 3 times in it.

I am reviewing new client's 2017 tax returns. Federal Schedule C has normal income and deductions allowed by now defunct Sec 181. CA does not have any fed/CA difference. That is massively incorrect, correct? Shouldn't all costs be capitalized to the film being made for CA?

It has been awhile, but I think CA offers a tax credit for film production. You may want to look into this.

http://film.ca.gov/tax-credit/the-basics-2-0/

Re JAD's #9, yes, 181 is gone for Fed purposes as of 2018 (projects "commencing after December 31, 2017"), but for CA has not applied since 2005. 17201.5:

Section 181 of the Internal Revenue Code, relating to treatment of certain qualified film and television productions, shall not apply.
(Added by Stats. 2005, Ch. 691, Sec. 20. Effective October 7, 2005.)

Do you help the client apply for film credits? In CA, it looks like a pretty detailed, time consuming process. I’m betting that she will want my help with the application, which does not look fun.

How do non-resident state issues work? For example, if she films out of state, I would think that nexus would be created, but if there isn’t any income from the film until future years, then how does the state where filming occurred get its tax?

The grant income is immediately taxable, right? I cannot find any exception to the general rule.

Thanks!

She makes documentaries.

2. Film production qualifies for Sec 199.

Does it though?

§1.199A-5(b)(2)(vi):

Meaning of services performed in the field of performing arts

For purposes of section 199A(d)(2) and paragraph (b)(1)(v) of this section only, the performance of services in the field of the performing arts means the performance of services by individuals who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors, and similar professionals performing services in their capacity as such. The performance of services in the field of performing arts does not include the provision of services that do not require skills unique to the creation of performing arts, such as the maintenance and operation of equipment or facilities for use in the performing arts. Similarly, the performance of services in the field of the performing arts does not include the provision of services by persons who broadcast or otherwise disseminate video or audio of performing arts to the public.

§1.199A-5(b)(3)(vi):

Example 6. B is a partner in Movie LLC, a partnership. Movie LLC is a film production company. Movie LLC plans and coordinates film production. Movie LLC shares in the profits of the films that it produces. Therefore, Movie LLC is engaged in the performance of services in an SSTB in the field of performing arts within the meaning of section 199A(d)(2) or paragraphs (b)(1)(v) and (b)(2)(vi) of this section. B is a passive owner in Movie LLC and does not provide any services with respect to Movie LLC. However, because Movie LLC is engaged in an SSTB in the field of performing arts, B's distributive share of the income, gain, deduction, and loss with respect to Movie LLC is not eligible for a deduction under section 199A.

I now realize the OP was back in 2017 and referring to DPAD...

Ignore my post...unless you're searching for "film" and "199A".

When I referred to 199, I was referring to 199, not 199A. I posted that before the passage of TCJA.

Thanks for any help with my post #12.

by the way, once you are grandfathered in with 181, you are good.

If you began principal photography and meet hte other requirements (like 75% of costs of making film are incurred in USA), then you are grandfathered in and can continue with Section 181 at the federal level.

CA is another story, i guess locked into income forecast method there.

What i don't get is what ManvsTax posted - the ex 6 in Final Regs....how does Movie LLC share in profits....the people who own Movie LLC share in the profits...since when does the LLC itself share in the profits? Every film that is an LLC that i've worked on doesn't share in any profits. The LLC owns the film and there are partners who share in the profits and losses.

This this example says "Therefore" Movie is engaged in the performance of services in an SSTB in the performing arts - why? b/c it plans and coordinates film production AND shares in the profits.

Appreciate anyone's insight if an LLC owns the copyright to a film. And there are several partners who own the LLC. Is such an LLC an SSTB.

Seems to me that the actors in the film, the director, the producer, the writer, and so forth...THEY'RE ENTITIES ARE SSTB.....and my LLC is not.

by the way, once you are grandfathered in with 181, you are good.

Am I correct that you mean that if you elected 181 for a specific film that was in production by 2017 at the latest, the costs related to that film remain deductible under 181?

correct.

O. M. G.

Check this out

https://www.congress.gov/bill/116th-con ... 23C07BBFED

SEC. 116. EXPENSING RULES FOR CERTAIN PRODUCTIONS.
(a) In General.—Section 181(g) is amended by striking “December 31, 2017” and inserting “December 31, 2020”.

(b) Effective Date.—The amendment made by this section shall apply to productions commencing after December 31, 2017.

I guess that it is too much to ask our politicians to have some sort of common sense regarding the impact of passing these extenders so late in the game.