Investing in Television Productions
Section 181 federal income tax break has been renewed until December 31, 2013
This summary is not to be construed as a securities offering and is intended for research and information purposes only.
How your investment is assured a return of 50-100% for Film & Television
production in the United States
If you are an individual Investor, Private Equity Firm, Hedge Fund, HNW Investor, Asset Manager, Fund Of Fund, or Regional Company and are looking for a high-yield, absolute-return alternative investment that also can generate substantial Federal and State Tax Incentives, Credits, Cash Rebates, while at the same time be part of a structured film finance opportunity that can offer an absolute return of 50-100% on capital before revenues, offer long-term multiple exit strategies, and liquidity options, then continue reading.
MINIMIZING INVESTOR RISK with United States Film Subsidies
The American Jobs Creation Act Of 2004 and the 2004 enactment of Section 181, marked an unprecedented change in U.S. policy toward the phenomenon known as "Runaway Production" for the film industry. Hollywood, like many American industries, had grown tired of the high cost of labor and taxes in the United States. Canada and other countries identified the potential financial benefit and took advantage by successfully luring American film and television production onto their soil, taking enormous amounts of production dollars with them. The government’s reaction was to include Section 181 within the American Jobs Creation Act of 2004. Section 181 offers tax incentives for investors in independent film and television productions produced within the United States. Currently, Section 181 falls under the American Taxpayer Relief Act of 2012 which expires December 31, 2013.
You’ve heard of farming subsidies. A few years back savvy film lobbyists created
subsidies for the film industry. As they outlined the dangers of runaway film
production to Canada, Eastern Europe and Australia, Congress passed legislation
that resulted in Section 181 of the IRS Tax Code.
Put simply, Section 181 states that investment in a motion picture shot in the US is 100% tax deductable for the investor in the same year invested.
Under Section 181 an investor may deduct the money which is invested in a film or television production from his or her passive income earned in the same year.
If the investor is actively involved in the operation of the production, he or she may deduct the amount of investment from all active income earned in the same year. Productions with budgets below $15,000,000 (up to $20,000,000) which have at least seventy-five percent 75% of its production completed within the United States qualify under Section 181. Investors can be either individuals or businesses.
Here are some Investor broad strokes for the Section 181 Tax Deduction:
-100% of the motion picture costs are deductible in the same year of investment.
- 75% of the motion picture must be shot in the US to qualify for Section 181.
- There is a 15 to 20 million dollar budget cap.
- There is no minimum film production budget cost.
- TV pilots, TV episodes (up to 44), short films, music videos and feature films all qualify for Section 181.
- Section 181 can be applied to active income or passive income.
- Investors can be either individuals or businesses.
- Section 181 is retroactive.
- There is no expectation for film distribution or film completion.
- The motion picture’s corporation issues Schedule K-1’s to the investors so they can take advantage of Section 181.
WHAT IT MEANS FOR INVESTORS:
Tax rebates and incentives for money spent on film or television production within a particular state combined with the benefits of Section 181 allow an investor (working with cooperative film producers) to greatly minimize his or her risk on what would ordinarily be considered a risky investment. For example, if a tax payer is in the thirty-five percent (35%) tax bracket and a qualifying film is shot in Illinois which has a tax credit up to thirty percent (30%), an investor will be eligible to recapture seventy five percent (65%) of their investment in a qualifying production. This recapture can berealized before the film is released and/or makes its first dollar. In today’s economy this type of investment assurance is hard to come by.
GOVERNMENT SPONSORSHIP: State Film Incentives passed onto Investor
In addition to the Section 181 tax deduction, the motion picture can be filmed in a state with rebates or transferrable tax credits. If the film Producers elect to do so, they can pass this subsidy onto our investors upon release of the rebate. As an example, if a $1,000,00.00 TV Show shoots in Illinois and spends every penny in the state (or, through a pass through corporation that pays state taxes) the state of Illinois will issue a 30% tax rebate, worth approximately $300,000.00, that can be sold for a little less than face value. That check can then passed onto to the investors. This is a considerable risk minimization for the Investor. With state film incentives alone, the investor is only risking 70 cents (average) on the dollar if the project is produced in Illinois or lower even lower in other states.
In essence, the investor risks 50 to 70 cents on the dollar and the government is picking up the balance on a delayed time table. There are currently 38 states in the United States that have some type of tax credit or rebate plan. Here is a current List of State Film Incentives with updated information provided by Entertainment Partners.
Illinois Film Tax Credit Bill
MARRIAGE of Gov't Sponsorship and Section 181:
Combine Section 181 federal tax break with a state film tax rebate.
By coupling the two together you can reduce an investor’s risk by 50-100%. Think about that. It does depend on how much the investor earns annually, how much they’ve invested in the production and where the production will be produced…but, it is possible that an investor could invest in a television show or motion picture…and risk nothing. Conservatively, the risk could be 50% of your investment. That means for investing $1,000,000.00 you are assured to recoup $500,000.00 in tax deductions and rebates. Depending on the math and the possible film pre-sales to foreign territories, Investors could recoup 100% of their investment before the film is distributed.
Here is an example. The television or movie production needs 2,000,000. Investor X wants to invest 1,000,000 into the film. Their annual income is 5,000,000 and they have 10M in assets. Their annual taxes are approximately 1.75 M (35% tax bracket) and they have absolutely no tax write-offs to take advantage of. If they invest $1,000,000 they’ll be risking $650,000.00 investment in the motion picture, and will have saved themselves approximately $350,000 in federal income taxes. So, that means the investor is risking 65 cents on the dollar. But, wait! The movie is going to shoot in the state of Illinois. Illinois will give you a 30% rebate for above and below the line. They’ll kick in an extra 30% if you employee Illinois residents up to 100,000 per salary per employee. So, you shoot in Illinois and spend $1,000,000 in the state. That means they’ll grant you a 50% tax rebate on your gross spend in Illinois, minus tax rebate broker fees. That’s around $500,000. This rebate can then go to the investors. Investor X will now be getting approximately $850,000 in tax deductions and rebates from the Federal Government and the State for their $1,000,000 investment in the television or motion picture. Under this scenario, Investor X's actual risk is less than 15 cents on the dollar. And the upside is the investor will receive revenues from world-wide distribution sales and licenses of the production. Additionally, 9% of the future gross revenues from each Section 181 qualified project is non-taxable under Section 199.
INVEST BEFORE SECTION 181 EXPIRES 12/31/2013:
In order to optimize this opportunity and be successful, interested investors should contact qualified film producers with their interest.
A qualified accountant and/or attorney are always a good idea when utilizing the benefits of Section 181.
We are happy to speak with serious or curious investors and work with you to
maximize investment dollars to produce commercially viable television or motion
pictures that will profit in the marketplace. For questions related to Section
181 or equity investment for film and television production please contact Dan
Kost email@example.com or call (312) 436-0500.
LINKS - SECTION 181
Domestic Film Production Incentive Program
Revised Section 181 of the Internal Revenue Code
Congressional Research Service Summary
Section 181 published IRS tax code regulation (.pdf file): (2007)
Section 181 published IRS Example Scenarios (.pdf file): (2007)
IRS Tax Code Link for Section 181 (2007)
American Taxpayer Relief Act of 2012 (1/1/2013 pdf file) Sec. 317
Illinois State Tax Incentive
Tax Incentive for Illinois Investments
Trade notices for 2013 181 Extension:
Hwd Reporter 1-2-13
Daily Variety 1-2-13
Lawyers 4 Musicians 1-2-13
Familiar individuals who are financing films include Larry Ellison, Paul Allen, Steven Rales, Fred Smith, the CEO of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg, Bob Yari; and, financiers Sheikh Waleed Al Ibrahim, Zeid Masri of SilverHaze Partners, Michael Singer, Mark Esses, David Larcher, Michael Goguen, Richard Landry, Michael Reilly, Rafael Fogel, and Philip Anschutz.On the institutional side, familiar names such as CITIGROUP, Deutche Bank, JP Morgan, Morgan Stanley, Dresdner Kleinwort, GE Commercial Finance, ABRY Partners, AIG Direct Investments, Bank of America Capital Investors, Columbia Capital, Falcon Investment Advisors, and M/C Venture Partners are or have been involved with the finance of films.