Section 181 – Must the Production Be in the USA

Someone sent me an interesting Section 181 question on LinkedIn. I thought I’d share the question and the answer her. (She has a project which can be shot inexpensively in the Czech Republic with only minor parts shot in the USA – the project would be using US cast, and many US crew while shooting in the Czech Republic  – who would be taxed at home; so her question makes some sense.)

QUESTION:

Dear John,

I am taking the liberty to ask you a question regarding the section
181. Some websites say that 75% must be “shot” in US, others say that
75% of the budget must be “spent” in US. If the tax is based on budget
expenses then our production will qualify. Please be so kind and help
me to clear up my confusion. I don’t want to give wrong information to
the investors while raising funds.

__________________________________________________________

MY ANSWER:

Hi, MarieAnna. I have finally found the time to dig into Section 181 to answer your question. Again, I am not an expert in these matters, so please don’t depend on my answer as legitimate legal or professional advice.

If you go to the Internal Revenue Bulletin 2011-47 at this link http://www.irs.gov/irb/2011-47_IRB/ar08.html#d0e308  you will see this quote:

“Explanation and Summary of Comments

General Overview

Congress enacted section 181 to promote film and television production in the United States. For a qualified film or television production commenced before January 1, 2008 (a “pre-amendment production”), section 181 permits an owner to elect to deduct production costs paid or incurred by that owner in the taxable year the costs are paid or incurred, in lieu of capitalizing the costs and recovering them through depreciation allowances, if the aggregate production costs do not exceed $15 million ($20 million if a significant amount of the aggregate production costs are paid or incurred in certain designated areas) for each qualifying production (the “aggregate production costs limit”). A film or television production (a “production”) is a qualified film or television production if 75 percent of the total compensation for the production is compensation for services performed in the United States by actors, directors, producers, and other production personnel.”

Note this sentence … “A film or television production (a “production”) is a qualified film or television production if 75 percent of the total compensation for the production is compensation for services performed in the United States by actors, directors, producers, and other production personnel.”

I’m sorry to say that it’s quite clear that the services must be performed in the United States to qualify.

Sorry about that. I sincerely hope that you find another way to get your project off the ground.

Best / John

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About filmproduction
I have worked in the film production industry since 1985, working on over 50 different productions of every size in 6 different countries. My self-published book, "Walk The Talk" is written in an easy to read manner for film students and working professionals who haven't had the chance to learn how to 'Direct the Money'.

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