DGA Objects to IRS Ruling Undermining Federal Production Incentive

On Friday, February 9, 2007, the DGA joined SAG and IATSE in expressing strong disapproval of a just released Department of Treasury/IRS ruling on the implementation of the federal production incentive (called Section 181) which was contained in the American JOBS Creation Act of 2004.

That ruling asserts that the calculation of a production’s budget limit, which is stipulated in the legislation to be $15 million (unless production is shot in a distressed community in which case the limit is $20 million), must include participations and residuals. This decision undermines the incentive’s usefulness for low budget independent films by requiring them to include in their original budget the unknown dollars which might accrue to future participations and residuals if a film is profitable.

In a joint statement, the three Guilds said: “Keeping film and television production and the thousands of jobs it generates in the United States has long been one of our top priorities. We are extremely disappointed with today’s ruling, which we believe undermines the intent of the production incentive contained in the JOBS Act legislation.”

The overall tax incentive provision, remains in effect until its expiration at the end of 2008. It is expected to remain beneficial for some very low-budget film projects and most qualifying television series, where the $15 million cap is calculated on a per episode basis.

“While the incentive may still prove workable for television production and for some independent films, the ruling that participation and residuals – which are often based on sales and profits that cannot be known at the time of production – must be included as original production costs undermines the use of the incentive for many independent, low budget films,” according to the statement from DGA, SAG and IATSE. “It was exactly those productions that the legislation was intended to help. We do not believe that this is the outcome Congress intended.”