U.S. to Offer Retroactive Tax Break for Movies and TV Shows Made in 2014

U.S. Captial Building - H 2014
AP Images

U.S. Captial Building - H 2014

It would appear to mean Sony will be able to write off the first $15 million of the cost of 'The Interview'

Here is a holiday gift for Sony Pictures and all of the other major American movie and television companies – the national tax incentive meant to encourage movie production that expired last January has been revived retroactively for all of 2014.

Under Section 181, any production that meets certain basic qualifications can now deduct the first $15 million of the cost against federal tax obligations. This can increase to $20 million if the production took place in an area designated as a low income community.

The key requirement is that at least 75 percent of total expenses of the production, including the cost of services, actors, directors, producers and other personnel, were performed in the U.S.

Residuals, however, are not included in the tax break.

It would appear to mean Sony will be able to write off the first $15 million of the cost of The Interview; just as every studio in Hollywood will get an unexpected windfall tax break for movie and TV programs made on American soil this year.

The bill known as the Tax Increase Prevention Act of 2014 has passed both houses of Congress and President Obama has indicated he will sign the legislation when it reaches his desk.

Besides 181, the bill includes renewals for dozens of other tax breaks from deductions for school teachers to state and local sales taxes.

It is 181, however, that will light up Hollywood’s holiday.

For a bill that is supposed to stop “runaway” production from gong overseas, this extension looks backwards not forwards.

It has not been renewed for 2015 or other coming years, so the idea it might encourage production in the U.S. – which is what it was originally intended to do – is not relevant.

So why has it been revived as part of a Congressional end of year “extender bill” that renews tax breaks for a wide range of things?

Schuyler Moore, a partner in the Stroock law firm in Los Angles, said Friday that he has been told by Washington insiders that “it really is about lobbying” and getting political contributions.

“The joke is,” adds Moore, “rather than encourage production in the U.S., it really is to encourage lobbying donations in the U.S. because if it comes up every year somebody is encouraged to give somebody money every year to actually make it pass.”

This isn’t the first time its been done retroactively either. In 2013, Congress made Section 181 retroactive for 2012 as part of the American Taxpayers Relief Act of 2012.

Section 181 was also revived at the end of 2012 covering movies made in 2011. It has been going on this way pretty much since 181 was born in the Jobs Creation Act of 2004.

However this past January, 181 was allowed to expire – until now.

The retroactive extension can be used by any production, independent or not. However, it is the major movie and television distributors who have produced slates of movies and many hours of TV in the past year that get the most benefit.

The producers can get the benefit of Section 181 even if they have also already received state or other local tax incentive funds. “The state rebate,” says Moore, “is based on shooting cost, not that you got a deduction for it.”

“Congress,” says Moore, “has given the ultimate Christmas gift to itself.”