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U.S. Financial Bailout Brings New Amendment To Section 181 for the Deduction of Film Costs

By Schuyler M. Moore

The new $700 billion U.S. financial bailout bill included some tax zingers to buy off House of Representative votes. One such zinger was an extension and amendment (“the Amendment”) to Internal Revenue Code (IRC) Sec. 181, which now provides a deduction for the first $15 million of the cost of certain films produced in the U.S. This article summarizes Sec. 181, including the impact of the Amendment and the Internal Revenue Service (IRS) Temporary Regulations issued last year.

In summary, Sec. 181 now permits a 100% deduction (“the Film Deduction”) for the first $15 million of the cost (“Film Costs”) of certain audio-visual works (“Qualified Audio-Visual Works”) that commence principal photography in 2008 or 2009. Section 181 originally applied to Qualified Audio-Visual Works that commenced principal photography after Oct. 22, 2004, but before the Amendment, Sec. 181 was all or nothing: if the Film Costs (including residuals and participations) exceeded $15 million, you lost ' you didn't get to deduct the first $15 million. Under the Amendment, you always get to deduct the first $15 million of Film Costs, regardless of how high the budget is. Even better, the Amendment is retroactive to Qualified Audio-Visual Works that commenced principal photography after 2007.

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