Entertainment Lawyer Q&A: Section 181 Film and TV Tax Deductions

By Brandon Blake, entertainment attorney at Blake & Wang P.A.

Question: I'm trying to fully understand the implications of the Section 181 Film and TV Tax Deductions expiring at the end of this year. We are planning on shooting a few days of our film in 2013 so that we can possibly offer section 181 tax deductions to future equity investors if section 181 does not get renewed.

If we continue to raise equity for our film in 2014, after our project has begun principal photography in 2013, can we offer these section 181 tax deductions to our investors who invest in 2014? 

Answer: Like horror icons Jason and Freddy, Section 181 has been resurrected so many times in the following year that simply nobody believes it will stay dead. Flashing back to the start of 2013 with the "fiscal cliff" negotiations, the America Taxpayer Relief Act was passed at 2 am in late night negotiations. Well, the drama of the moment has passed but we did get Section 181 extended for one additional year.

However, there is good reason to believe that this might in fact be the last year for the Section 181 deduction, since the White House seems less and less able to press through additional "stimulus" measures and the various stock indexes are all at record highs.

According to the extended section 181 of the American Jobs Creation Act, this revised domestic film production incentive program, covering the first $15 million of costs of all productions -- will be in effect for qualifying productions commencing before January 1, 2014.

If this really is the last year for Section 181 then film and television producers should consider starting at least a few days of principal photography this year, as well as meeting the other criteria needed to preserve the opportunity to offer the section 181 tax deduction to qualifying investors.

Moreover, it is not enough to simply start principal photography, because as Section 181 is drafted it is actually a tax election that must be taken by the investment company. So therefore an investment company and offering needs to be set up in 2013 and there must be the proper election taken on the company tax return that is filed on March 15, 2014, to preserve the status of the production.

As with any federal tax deduction, the regulations can and do change and it is possible for there to be mid-year changes in tax policy. Contact an attorney before making financial, tax, or business decisions. Our firm has been handling securities, limited offerings and PPMs for film, television and music clients for more than 13 years. Feel free to contact us for a quote for affordable, high quality legal service. 

- By Brandon Blake, Entertainment Attorney

About the Editor:
Brandon A. Blake is an entertainment lawyer and producer who works with Academy Award winning actors, directors and filmmakers. A complete biography is available online.

About the Entertainment Lawyer Q&A:
The Entertainment Lawyer Q&A does not create an attorney-client relationship, nor is the information treated as confidential. Responses to selected questions will be made public and shared with our subscribers. All entertainment law information is informational in nature and is not intended to be acted on without entertainment lawyer counsel.