The U.S. government issued changes to federal regulations so that television and film producers can continue deducting production costs from a company’s taxes.
On Oct. 19, 2011, the Internal Revenue Service (IRS) posted notices on the Federal Register—Deduction for Qualified Film and Television Production Costs—that detail “final and temporary regulations relating to deductions for the cost of producing film and television productions.” The latest IRS notices follow a notice posted on Sept. 30 announcing that the film production tax deductions, which were already in use, were made permanent on Sept. 29.
The Oct. 19 Federal Register notice contains amendments to the Code of Federal Regulations (CFR) that direct the Internal Revenue Code of 1986 to allow the deduction of certain production costs by the producer of a qualified film or television production. To qualify for the deduction, at least 75 percent of the total compensation of a film or television production must be compensation for services performed in the United States by actors, directors, producers and other production personnel, the notice says.
Section 181 of the IRS Code allows the owner of a qualified film or television production to deduct the costs of production “paid or incurred” by the owner for the year the costs are paid or incurred, in lieu of capitalizing the costs and recovering them through depreciation allowances, the notice says.
The regulation also says for qualified film or television productions that commenced before Jan. 1, 2008 (designated as “pre-amendment production”), the tax deduction is available only if the aggregate production costs paid or incurred by all owners does not exceed $15 million ($20 million if a significant amount of the production costs are paid or incurred in certain designated areas; the “aggregate production costs limit”).
For productions commencing on or after Jan. 1, 2008 (designated as “post-amendment production”), the aggregate production costs limit does not apply; rather, the aggregate deduction for production costs paid or incurred by all owners of a qualified film or television production is limited to $15 million($20 million if a significant amount of the production costs are incurred in certain designated areas; the “deduction limit”).
The second IRS notice provides “cross reference” information on the temporary film and television production tax deductions that had been in place and it lists Jan. 17, 2012 as the deadline for written comments and requests for a public hearing on the tax deductions.