Film Option Extension Payment

Technical topics regarding tax preparation.
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Partnership paid $50k to an author in 2016 for the option to make a film out of his book. The $50k was put on the balance sheet as an asset. In 2017 the partnership incurred some expenses to start writing the script which was also capitalized. I visited section 181 expense treatment at the time but the production hadn’t commenced yet so expensing wasn’t an option. In 2018, film production still hadn’t started and the option was set to expire so the partnership paid another $25k to renew the option as well as some additional script development costs in the first few months of the year. Partnership lets the option expire in 2019 and never started production, there was no documented correspondence deciding to abandon the project they just stopped putting any effort into it around mid-2018.

I’m trying to determine the 2018 tax treatment. My initial thought was that there was no affirmative act to abandon the film in 2018 so the $25k option extension payment and additional script costs get capitalized under sec 263. I came across some industry articles indicating that the pre-production and production costs can now be expensed for small taxpayers. However, my reading is that the TCJA only exempts small taxpayers from having to capitalize indirect and incidental expenses otherwise required to be capitalized under 263a.

I would appreciate your input on the following:

1. Is there a case for taking a 2018 deduction/loss for the original $50k option payment? Section 424(h) treats the renewal or extension of a stock option as the grant of a new option. Seems like a stretch to apply that logic to this situation but could the $25k be a new capitalized option with the $50k treated as an expired option which would be treated as a loss having the same character as the property that the option related to?
2. Is there some interpretation of the TCJA that I’m missing which allows a small taxpayer to deduct direct costs instead of capitalizing them? This is a much more far reaching questions.

Thanks in advance for your thoughts.
 

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