Broadway May Be Closer to Earning an IRS Write-Off

Bill would help backers defer taxes until a show recoups, but passage needs a strong supporting player

Why should film and TV get all the breaks? The tax breaks, that is.

Broadway producers have been asking that question for years now — and with the recent announcement by U.S. Sen. Charles E. Schumer (D-N.Y.) of his intention to introduce the Stage Act of 2013, the legit industry may be one step closer to earning an IRS write-off.

The goal is to include investors in theatrical productions among those who benefit from Section 181 of the federal tax code, which allows film and TV producers to expense up to $15 million of the costs of a U.S.-based project — meaning that a studio or production company won’t start paying taxes on income from a project until that $15 million is recouped. Earlier this year, Section 181 was extended through 2013.

The Broadway League, the trade association of legit producers and presenters, stepped up its advocacy for legit’s inclusion in the section when Rialto producer Tom Viertel became the chair of the league’s government relations committee a few years back. About a year ago, the League got Schumer interested in the proposal, but the idea couldn’t progress without bipartisan support, which recently came from Sen. Roy Blunt (R-Mo).

The benefits of Section 181 seem pretty obvious to legiters. The capitalization costs of most Broadway productions, except for a rare mega-budget endeavor such as “Spider-Man: Turn Off the Dark,” fall under that $15 million mark, meaning that investors wouldn’t have to start paying taxes on income from a production until the show has actually recouped and they’ve started to make a profit.

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That’s a big change from the current state of things, where investors pay taxes on income from a show that hasn’t made it into the black yet.

“In a producer’s offering papers to investors, you have to disclose that investors could pay taxes before they’ve made a dollar of profit from the project,” says Tom Ferrugia, the League’s director of government relations. “That’s a big disincentive to invest.”

The deferment could prove particularly attractive to the small investors who comprise the majority of Broadway backers. Or at least it could eliminate one more stumbling block to investing in the already risky world of the Main Stem.

Section 181 was initially proposed to prevent runaway film production. That’s less of an issue for the Broadway-centric commercial theater world, although it could become more of a concern in the future, given the recent push Australia has made to attract the development of globally aimed stage work.

The League also is pushing for additional tax-code changes that nail down the nebulous question of when an investor is able to write off a passive loss against active income. There are also efforts to expand to producers of live musicals and plays the code section in which profits from the sale of self-created musical works (read, publishing rights) are taxed as capital gains rather than ordinary income, as well as to secure tax deductions for companies that make physical goods used by legit productions.

Broadway types underline their cause with studies that show that in the 2010-11 season, Rialto productions had a cumulative economic impact of $11.2 billion in Gotham, while touring shows contributed $3.4 billion to the U.S. economy in the 2008-09 season (the latest year for which figures are available).

The League can also enlist allies with a vested interested in keeping Broadway busy with new productions and the new jobs that go with them. Tom Carpenter, general counsel of Actors’ Equity Assn., envisions the thesp and stage manager union collecting stories from member actors who have been cast in productions that might have been saved by the prospective bill. “We’re going to try to quantify that data, so that we can show how many jobs can be protected,” he says.

There’s no set timeline for the Stage Act, especially since, in Ferrugia’s estimation, the bill is small enough that it wouldn’t go through as a stand-alone. The next step, then, is to drum up bipartisan support for a companion bill in the House of Representatives, and wait for a batch of tax reforms with which the Stage Act could be bundled.

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