The legislation passed by Congress on Tuesday to avert a fiscal cliff includes a sweetener for Hollywood: the extension of a tax provision that is designed to boost U.S. film and TV production.
The provision, Section 181 of the tax code, allows producers to immediately deduct the first $15 million of production costs if 75% occurs in the U.S., allowing investors the option of writing off expenses in the year it occurs, rather than having to amortize the costs over a period of years after a film is distributed.
The provision has been in place since 2004, when it was part of a jobs bill, but it is not permanent. It was last extended at the end of 2010, and this latest congressional action extends it from Jan. 1, 2011, to Dec. 31 of this year.
The provision is among the tax sweeteners in the fiscal legislation that has raised some eyebrows, and some lawmakers who opposed the overall fiscal deal characterized it as among a number of special interest “carve outs,” tacked on at the 11th hour as lawmakers rushed to get a deal done. ABC News put the cost of the provision at $430 million.
A spokeswoman for the MPAA defended the provision, saying that “a strong American film industry contributes to a strong American economy.”
Moreover, according to Hal “Corky” Kessler, a Chicago attorney who has pushed for the incentives, many producers have not taken advantage of the incentive even though it has been in place for eight years.
“I am still amazed how few people know about 181,” said Kessler, who added that he will talk about the provision at a panel at the Sundance Film Festival on Jan. 21.
Kessler, who called Section 181 the “ultimate jobs act,” noted that filmmakers have to declare that they are electing to take the expense status on the first tax return of their project or they will miss out on the benefit.
Reps. Howard Berman (D-Calif.) and David Dreier (R-Calif.), who are departing Congress, proposed legislation in May to extend the provision, but no action was taken. Nevertheless, it was included among a host of tax incentives placed into the fiscal cliff legislation, something that is much more politically viable. Showbiz has found itself in the crosshairs in the past as lawmakers targeted legislation they attacked as beneficial to well-heeled Hollywood producers, even as the industry has long argued the value of incentives for communities and workers across the country.
The tax provision allows for a higher expenditure cap of $20 million for productions shot in certain low income or distressed communities. Section 1818 applies to all productions, no matter the budget, but only the first 44 episodes of a TV series (including the pilot) are eligible.