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Last Hurrah for IRS Section 181
Filmmakers' Tax Break Set to Expire

Filmmakers are about to lose one of their richest tax breaks. Set to expire at the end of this year, Section 181 of the IRS Tax Code was established so film investors could write off their entire investment in the same year it’s made (not when the film is released).  

While the total tax break caps at $15-20M per film, there’s no limit to the film budget. Write offs can be used for TV pilots, TV episodes, short films, music videos and features. It can be applied to active or passive income coming from either individuals or businesses. The film does not have to be completed or distributed prior to taking the write off. Once established, there is no time limit to using the tax break.

With time so short and critical, reelgrok will be working with Chicago based attorney Hal “Corky” Kessler to help filmmakers jump start their productions and meet the requirements before the end of 2011.

Established in 2004 as part of the Jobs Creation Act, Kessler was instrumental in shaping the original regulations. He has commented on it for reelgrok several times. The regulation has been underused and the current congress shows no inclination to extend it beyond the end of 2011.

Kessler noted that there is still a short window for filmmakers to get film projects grandfathered under Section 181. To meet the requirements, a film will need the following:

1. A SCREENPLAY, dated this year or earlier. The screenplay can be rewritten later.
2. A BUDGET which can also be changed at any time in the future.
3. LLC INVESTMENT DOCUMENTS must be filed before the end of this year.  Investor documents have to be drafted though there is no requirement to have investors now.
4. PHOTOGRAPHY WITH DIALOGUE.  Film for at least one day with a crew of any size, even one. The scene must be in the screenplay, but can be changed, reshot or eliminated later.

Once grandfathered, there is no time limit on raising the funding or even finishing the movie. The investment qualifies even if the project is abandoned. Once everything is in place, the film or series (up to 44 episodes) will be eligible indefinitely.

Congress is about to let the goose that laid this golden egg die of neglect. With time so short and critical, reelgrok will be working with Corky Kessler to help filmmakers jump start their productions and meet the requirements before the end of 2011.

Moving quickly, there is still time for projects to be vested under the provisions of Section 181. We will be available to assist with each of the mandatory requirements, from setting up the Limited Liability Company and investment documents, to creating budgets and even helping set up the one-day shoot.

While each of the requirements is relatively straightforward, it is also essential. If a filmmaker doesn’t account for every bit of paperwork properly or fails to declare 181 election status on the first tax return of the project, everyone will miss out on the Section 181 benefits.

For further information, contact us as quickly as possible. We’re down to the final few weeks.

• Hal “Corky” Kessler
  Deutsch, Levy & Engel, 225 W. Washington Street, Suite 1700, Chicago, Illinois 60606
  312-346-1460  Kessler@dlec.com

• Norman C. Berns
  Reelgrok, 3806 Sheridan Avenue South, Minneapolis, MN 55410
  612-928-9900  norman@reelgrok.com