Fiscal Cliff: Hollywood Tax Incentives Renewed Under Deal

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The bill drafted by the Senate and passed by the House late Tuesday extends for another year film production tax credits first allowed by the Bush administration in 2004.

Hollywood—particularly TV production—emerged from New Year’s frenetic congressional spitting match over taxes as a quiet, but substantial winner.

In what appears to be a reaffirmation of congressional faith in the entertainment industry as a creator of high-wage jobs, the tax bill drafted by the Senate and passed by a divided House extends for another year production tax credits first allowed by the Bush administration in 2004.

The idea was first advanced as a way to slow the flight of lower budget productions to foreign sites, many of which offer generous allowances of various sorts. As extended through 2013, the credit allows deduction of production costs up to $15 million and as much as $20 million for shoots that occur in sites that meet the bill’s criteria for an economically disadvantaged area.

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The tax credit -- originally championed by Republican senators Orrin Hatch and Olympia Snowe and Democratic senators Blanche Lincoln and Max Baucus -- offers a particular benefit to television producers, since the deduction applies to each episode of a series. The bill, which has been extended several times since 2004, provides “that each episode of such series shall be treated as a separate production,” up to a maximum of 44 episodes.

Chicago-based entertainment lawyer Hal "Corky" Kessler, who urged Congress to pass the tax incentives nine years ago, said Wednesday that he has been working closely with Baucus' office in recent months to make sure the measure was extended. He said he's planning to moderate a panel at the Sundance Film Festival this month to educate filmmakers and investors on what they need to do to qualify for the tax breaks.

"What it does is it helps stop runaway production," Kessler said. "It helps get investors who would like to have a significant impact in their taxes reduced."

Kessler added that the measure retroactively covers 2012, in addition to 2013. "All 2012 films and television projects can qualify if the accounting is done right and the accountant makes the election in the first tax return for the film," he said. "It was a New Year's gift from Congress."

The Directors Guild of America and the Independent Film & Televison Alliance put together a brochure in 2010 outlining the benefits of the tax code, known as "Section 181."

"This is a significant Federal tax incentive that allows producers of qualifying productions to take an immediate tax deduction for the full or partial costs of a production in the year the cost is incurred (as opposed to having to spread or amortize those costs over a period of years beginning after the film goes to market)," according to the DGA & IFTA.