Section 181 – Example Applications From the IRS
April 17, 2013 Leave a comment
Here’s the link to the whole IRS Bulletin 2011-47,TD9551: http://www.irs.gov/irb/2011-47_IRB/ar08.html
I’ve copy/pasted the examples, which are fairly easy to read. I hope this helps all you emerging producers to get your financing (if you’re new to this blog I have a couple of easy to read demonstrations of how Sec 181 works – dig around):
The following examples illustrate the application of §§1.181-1 through 1.181-4:
Example 1. X, a corporation that uses an accrual method of accounting and files Federal income tax returns on a calendar-year basis, is a producer of films. X is the owner (within the meaning of §1.181-1(a)(2)) of film ABC. X incurs production costs in year 1, but does not commence principal photography for film ABC until year 2. In year 1, X reasonably expects, based on all of the facts and circumstances, that film ABC will be set for production and will be a qualified film or television production. Provided that X satisfies all other requirements of §§1.181-1 through 1.181-4 and §1.181-6, X may deduct in year 1 the production costs for film ABC that X incurred in year 1.
Example 2. The facts are the same as in Example 1. In year 2, X begins, but does not complete, principal photography for film ABC. Most of the scenes that X films in year 2 are shot outside the United States and, as of December 31, year 2, less than 75 percent of the total compensation paid for film ABC is qualified compensation. Nevertheless, X still reasonably expects, based on all of the facts and circumstances, that film ABC will be a qualified film or television production. Provided that X satisfies all other requirements of §§1.181-1 through 1.181-4 and §1.181-6, X may deduct in year 2 the production costs for film ABC that X incurred in year 2.
Example 3. The facts are the same as in Example 2. In year 3, X continues, but does not complete, production of film ABC. Due to changes in the expected production costs of film ABC, X no longer expects film ABC to qualify under section 181. X files a statement with its return for year 3 identifying the film and stating that X revokes its election under section 181. X includes in income in year 3 the deductions claimed in year 1 and in year 2 as provided for in §1.181-4(a)(3). X has successfully revoked its election pursuant to §1.181-2(d).”