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What is Section 181- Federal Film Financing Incentive |
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Written by Scott Paul Dunham
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Tuesday, 09 March 2010 |
Michigan State Film Rebates Can Be Used With Section 181 Tax
Incentives by Private Equity Investors, Corporations, Fund Of Funds
8 March 2010
http://multi-tricks.info/michigan-state-film-rebates-can-be-used-with-section-181-tax-incentives-by-private-equity-investors-corporations-fund-of-funds/
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The State Of Michigan is offering a new 40% cash rebate of motion
picture production which makes it the most aggressive program in the
country. It is trying to send a message to hedge funds, private equity
groups, money managers, family offices, tax attorneys, high net worth
investors, tax credit buyers, New Markets Tax Credit investors, and
other international investors on the risk minimization of entertainment
finance by getting a 40% cash back on the cost of equity.
However, on top of the 40% cash rebates, investors may also utilize
Section 181 to offset their 75% and in some instances 100% dollar for
dollar on the cost of film finance, all before operations, distribution,
and international revenues.
In the past two years many institutional investors such as 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 all involved with the finance of films.
Indiviudals 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
The American Jobs Creation Act Of 2004, the 2004 enactment of Section
181 of the Internal Revenue Code of 1986 (the "Code") marked an
unprecedented change in U.S. policy toward the phenomenon known as
"Runaway Production".
Runaway Production refers to a film or television production that leaves
one state or country to be filmed in another purely for economic
reasons. This movement occurs because producers tend to film in the
location where they can minimize production costs through tax
incentives, cheaper labor.
Over the years, Canada has been the greatest beneficiary of U.S. runaway
productions (according to some reports, Canada has claimed up to 80% of
the U.S. runaways, generating an economic impact of $10.3 billion in
production output in 1998 alone).
Section 181 represents the first time that the U.S. federal government
has recognized this impact by passing tax legislation to actively combat
the flight of film and television programming.
Section 181 permits a 100% write-off for the cost of certain
audio-visual works, regardless of what media they are destined for
(e.g., theatrical, television, DVD, etc.).
An individual or company who makes an investment into Section 181
qualified productions can take a 100% deduction of their investment
against their passive income in the year their investment was made.
The deduction can be made against active income should the investment be
made by or through a widely held C corporation. The law is in effect
until December 31, 2008, therefore investments must be made before that
date and the money invested into qualifying productions must be spent by
then by the productions.
But since Section 181 also allows for all other debt costs which are
usually associated with film finance, a $10 million dollar film, where
only $3.5 million is equity, an investor can deduct $3.5 million dollars
against the $10 million, especially if the latter is mezzanine or gap
finance.
Plus, an additional 20%-40% in state tax credits or rebates can be
generated back to the Investors, before revenues. And with the The State
of Michigan offering a 40% cash rebate for making a movie there, which
is the most aggressive in the country. That translates to an additional
$4 million in rebates to an investor based on a $10 million dollar film.
With the current appetite for alternative investing, real estate, and
hedge funds starting to crunch, the viability of having an investment
guaranteed up to 75-100% before operations and revenues is something
that should be reviewed and considered carefully as part of a new asset
class and portfolio holdings of private equity groups, money and wealth
managers, and high net worth individuals.
Yuri Rutman structures international tax advantaged film finance
investments for private equity funds, hedge funds, venture capital, tax
attorneys, family offices, private client services, wealth managers, and
established filmmakers and producers at http://www.noci.com
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