Saturday, February 23, 2013

Tax Break for Making TV Shows and Movies (But Not Porn)

At the 2012 Democratic National Convention, actress Eva Longoria called for higher taxes the rich: "The Eva Longoria who worked at Wendy's flipping burgers—she needed a tax break. But the Eva Longoria who works on movie sets does not."

Fortunately for the Eva Longoria who works on movie sets, Internal Revenue Code section 181 allows each movie to immediately deduct up to $15 million of production costs.  Even more fortunately for the Eva Longoria who stars in Desperate Housewives, each episode of a TV show counts separately, which means a $15 million deduction is allowed for each episode. 

(For some reason, only the first 44 episodes of a TV show are allowed the immediate deduction.  The Seinfield episode involving the lost wallet would not have qualified.)

Without the special tax break, movie and TV productions would be be required to deduct their costs over a long period of time and possibly 15 years.  The tax break greatly accelerates the movie producers' tax savings, at the government's expense.

One requirement for the tax break is that 75% of the total salaries for the movie or TV episode be paid for work in the United States.  The only other major requirement is that production does not need to keep "records under section 2257 of title 18," a euphemism for porn, which is unfortunate for the Eva Longoria who works on porn sets. 

The section 181 tax break was created by the American Jobs Creation Act of 2004, for a temporary five-year period, to stimulate movie and TV production in the United States.  Coincidentally, Eva Longoria's Desperate Housewives began broadcasting in 2004.  Congress noted that the productions create broader economic effects, with revenues and jobs generated in a variety of other local businesses, such as hotels, restaurants, catering companies, and equipment rental facilities.

The tax break originally applied only to small productions that cost less than $15 million, but it was quickly changed so that all productions can deduct the first $15 million of costs (even if total costs exceed $15 million).  Furthermore, the $15 million limit originally applied to an entire TV series, but Hurricane-Katrina-related tax laws changed the limit to apply to each TV episode, up to 44 episodes.

The expiration date has been extended numerous times, with the newest expiration date being December 31, 2013.

§ 181 Treatment of certain qualified film and television productions.

(a) Election to treat costs as expenses.  
 (1) In general.  A taxpayer may elect to treat the cost of any qualified film or television production as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction.
(2) Dollar limitation. (A) In general. Paragraph (1) shall not apply to so much of the aggregate cost of any qualified film or television production as exceeds $15,000,000.
(B) Higher [$20,000,000 limit for productions in certain low-income areas].  ***

(d) Qualified film or television production. For purposes of this section —
(1) In general.  The term “qualified film or television production” means any production described in paragraph (2) if 75 percent of the total compensation of the production is qualified compensation.
(2) Production.  (A) In general. A production is described in this paragraph if such production is property described in section 168(f)(3).
(B) Special rules for television series. In the case of a television series—  (i) each episode of such series shall be treated as a separate production, and  (ii) only the first 44 episodes of such series shall be taken into account.
(C) Exception. A production is not described in this paragraph if records are required under section 2257 of title 18, United States Code , to be maintained with respect to any performer in such production.
(3) Qualified compensation.  For purposes of paragraph (1) —  (A) In general. The term “qualified compensation” means compensation for services performed in the United States by actors, production personnel, directors, and producers.  ***

(f) Termination.  This section shall not apply to qualified film and television productions commencing after December 31, 2013.

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