Sunday, May 1, 2011

IRS tax code 181 or "So ya wanna be in pictures?"

As a filmmaker, I try my best to stay on top of the latest way to appeal to investors when formulating my business plans to fund movies.  What I find staggering is that very few people, along with myself, know about IRS tax code 181.  This tax code has been around for a few years and is good through 2011.  It is supposed to be extended by congress beyond that date.  But no one seems to be shouting this from the highest mountain top - as it should be.

181 allows investors who invest one million dollars in an American-made film shot in America by Americans to write off up to one hundred percent of their investment, either immediately, or the next time they pay taxes.  So an investor who owes the IRS one million dollars or more can now donate this money to a feature film or television production and immediately take the write-off or defer it.

Why is that?  Runaway production.  For those not involved in the movie biz, for several years now, American productions have been flocking to Canada and other countries that offer tax incentives for shooting within their borders.  Unlike the United States, other countries recognized the financial benefits of having entertainment productions shooting on their soil.  Each production can bring millions of dollars to the surrounding cities and towns that they shoot in.  Canada is so in love with American production companies that they have spent over seven hundred MILLION dollars on sound stages and facilities to support these productions.  Bet you didn't realize that a lot of the television shows you watch are not shot in Los Angeles or whatever town they depict themselves in, but in Toronto, Canada.

Now that productions have deserted Hollywood and, pretty much, American soil, the financial hardship of doing without these productions is becoming apparent to the lawmakers who previously thumbed their noses when approached about passing legislation to keep the filmmakers at home.  They thought of American producers and filmmakers as these rich kingpins who didn't deserve tax breaks.  That's funny when you consider that lawmakers had no problem giving money and tax breaks to big oil, gas, electric, big business and financial firms who have brought this country to its knees.

Although I strenuously urge any tax payer who is interested in 181 to check with their tax attorney or accountant before running toward me with wads of cash, this tax code has the potential to help an investor get his money back the moment he invests it, without the literal crapshoot of the old days when filmmakers had to be Steven Spielberg in order to inspire confidence in film investing.

The boon for filmmakers is obvious.  Before a producer had to promise 90% (or more!) of their film profit to attract investors due to the volatile nature of trying to recoup money when selling a feature film to a distributor.  A long, scary prospect that I may detail in a later blog.   Now that an investor can get their investment back almost immediately, a filmmaker can retain more of their potential profit and the investor can actually make some money - not just recoup his investment.  Hopefully, the investor will have a tax shelter by that time so he won't lose his/her new found wealth to the IRS again.

So c'mon angels, venture capitalists, lenders and common folk, show some love for American filmmakers just trying to bring their visions forward to the screen to entertain the masses and, perhaps if we're lucky, make a little dough so we can do it all again.

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