Crowdfunding For Film Production

Image From Studiobinder

My tax accountant sent me a year end information circular of general information. One section of the circular referred to a Crowdfunding IRS letter #2016-0036 that is still the last word in Crowdfunding. There were two quotes in the letter that I thought were well worth highlighting for anyone trying to crowd fund, and yet still stay clear of the IRS insisting that the funds are taxable in your hands. Note this article is not professional advice – please consult a professional accountant before relying on this article.

Here is the first quote from the IRS Crowdfunding Letter:

“What that means is that crowdfunding revenues generally are includible in income if they are not

1) loans that must be repaid,

2) capital contributed to an entity in exchange GENIN-105817-16 2 for an equity interest in the entity, or

 3) gifts made out of detached generosity and without any “quid pro quo.” However, a voluntary transfer without a “quid pro quo” is not necessarily a gift for federal income tax purposes.

In addition, crowdfunding revenues must generally be included in income to the extent they are received for services rendered or are gains from the sale of property.”

LOANS TO BE REPAID

It the funds received is a loan, ensure that you have a written agreement stating the terms of the loan and an unequivocal repayment date.

CAPITAL CONTRIBUTION

If it’s a ‘’capital contribution” make it clear that the money contributed buys a proportion of all common (voting) shares in the company – I remember at least one producer who said that 50% of the shares were for investors and the other 50% belonged to the producer. If you want to involve a lawyer, you can create different types of non-voting “Preferred Shares”; however, if you’re trying to put your money into the picture, just keep it as proportional common shares. If you want, you can buy official blank common share certificates at Staples for very little money. Just fill-out the certificates and send it to your contributors.

GIFTS

Say your great aunt Martha gives you a gift of money to help you make your film, with no other thought of payback in money or in kind. That is not taxable as revenue if it’s less than $15,000. Assuming that your company is not a registered charitable corporation, gifts in excess of $15,000 from each source are taxable to you, and your great aunt Martha is expected to issue you a 1099.

CROWDFUNDING MUST GENERALLY BE INCLUDED IN INCOME, UNLESS …

Take note of the final sentence in bold above – it is nailing down tight the concept that the IRS considers all other funding as income, and thus taxable. This fact brings me to my next quote i wanted to highlight in the a Crowd Funding IRS letter #2016-0036, “The regulation further provides that income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions. However, a self-imposed restriction on the availability of income does not legally defer recognition of that income.”

Interpreted, it means that in order to avoid having the funds taxed as revenue in your hands, even under any of the three conditions above, you will need to have a caveat in all agreements that clearly indicates substantial limitations or restrictions on the control of the funds – and, it can’t just be self-imposed restrictions. Check with Studiobinder or other crowdfunding institutions on the best way to do that.

NON-ACCREDITED INVESTOR

Finally, to stay within the government regulations you need to be familiar with the term “Non-Accredited Investor”. An “Accredited Investor” is someone who makes more than $100,00 per year, or who has net worth greater than $100,000. If your contributor is not an “accredited investor” then that contributor is limited to investing the greater of $2,000 or 5% of their annual income or net worth.  If you are lucky enough to find Accredited Investors, they may invest up to 10% of their income or net worth, whichever is less, up to a total limit of $100,000. I’m really not sure how closely this regulation is policed; however, I’m throwing it out there as something to look out for.

This article is not professional advice – it is opening the door to further study for all you crowd-funders. Please consult a professional accountant before relying on this article.

Cheers / John

 

 

Media and Entertainment Market Expected to Reach $771 Billion by 2019

Here’s what SelectUSA.gov.com has to say about the U.S. media and entertainment (M&E) industry:

“The U.S. media and entertainment (M&E) industry is comprised of businesses that produce and distribute motion pictures, television programs and commercials along with streaming content, music and audio recordings, broadcast, radio, book publishing, and video games.  The U.S. M&E market … is expected to reach $771 billion by 2019, up from $632 billion in 2015, according to the 2014 – 2019 Entertainment & Media Outlook by PriceWaterhouseCoopers (PwC).”

WHAT WOULD THAT MEAN FOR YOU?

That should be good news for anyone working on the periphery of the film and TV industry, but it should also be a wake-up call for CPA’s looking to expand their practice. Regardless if you’re interested in Film Production Accounting, or in working as a Line Producer, you’re probably wondering how you would fit into the M&E Industry. If I were you here are some of the immediate questions I would ask:

• What does the Film Accountant do that supports and is parallel with what a Producer needs to know?
• What qualifications does a person need to start working in film accounting? (Answer: surprisingly little)
• What are the industry specific accounting practices, reports and terminology that the film accountant prepares and the Producer must be able to supervise?
• How can an understanding of film accounting help me generate new business from Film Tax Incentives, and help the Producer access funding?
• How would an understanding of film and television production open the door to new business for my CPA practice?
• What level of billing or wages are usual for the film industry?
• What accounting, budgeting and scheduling software is used during a film or television production, how can I get familiar with it?
• How do I find contacts in the film industry?

Do some research. I think you’ll find that there is very little, if any, information available online – and most of what you’ll find is authored by me.

LEARN THROUGH WEEKEND WORKSHOPS – 14 HRS of CPE

Your questions will be answered in a weekend workshop, Film Accounting 101. I have another one coming up on May 6th and 7th in Chicago, IL. Learn by actually doing in a controlled environment. I keep the workshops less than 20 people so that we can have lots of one-on-one time.

 

For more info see http://www.filmaccounting.com

 

Cheers / John

 

 

 

 

 

Event-University of New Haven,Nov 12/16

Above-The-Line Budget

A friend of mine, Tom Garrett, is the Chair of the Film/Media Department at the University of New Haven. His mission is to have his students get REAL, well-rounded education in all facets of filmmaking. Having produced over a dozen movies himself, he knows what it takes to produce films, and he is passionate about having professionals impart their experience to his university’s students .

The Purpose of the Event

This event is a different view of how students can land, and keep, a job in film/TV production, followed by a talk on how business students, accountants and CPA’s can fit into the Film Industry.

Part 1: (Sat. Morning of Nov 12th) What Producer’s Want From Film School Students. This discussion will give the students familiarity with pertinent forms used everyday by crew, as well as ideas on how to find, and keep, jobs in the film industry.

Part 2: (Sat. Afternoon) The Business Side of Film & Media. The Film Industry is generally a closed industry. We open up for viewing the business terms and practices used by Producers, Studio Executives, Financiers, etc. throughout the industry. If you want insider knowledge, then this is the place. Several example documents will be issued as a guide.

The Mix of People Attending

In my last event with Tom there were a mix of filmmakers, documentary producers, distributors, accountants interested in the business, under- and  graduate students. Tom has made many contacts since graduating from the University of New Haven over 35 years ago! So, it will be interesting for both production people to attend as well as accountants, bookkeepers and those just interested in filmmaking.

About the Main Speaker – JOHN GASKIN

John Gaskin has been a Film Production Accountant for over 30 years. He has worked on 55 feature film and television projects of every size in 6 different countries. John has worked with such greats as Ron Howard, Frank Oz, Guillermo del Toro, George Clooney, Meryl Streep to name a few. His book, “Walk The Talk” is used in some universities, and is a favorite of Tom Garrett’s who has used it consistently in his courses since 2012.

More About TOM GARRETT

Tom is a flamboyant character who was described by one of his many admiring students as “Pulp Fiction meets Reservoir Dogs”! Tom drags any student who is willing off to Cannes each year, and he sweet-talks his many contacts into  speaking at his university (wherever that may be, since he’s been a professor at U of Tampa, and Sam Houston University as well). All that is happening while he is involved with the multiple film festivals.

Cheers! See you there!

John Gaskin

 

 

Film Accounting – Fresh and Fun CPE

FILM ACCOUNTING COURSES

A few years ago the Connecticut Film Tax Credit Administrator, Ed Ruggiero, asked me to deliver a workshop to CPA’s who were interested in performing audits of film productions for the CT State Tax Credit. I did just that, successfully helping several local CPA’s understand the Film Industry and Film Accounting much better. However, subsequent scheduling of workshops for CT CPA’s was difficult. As a result, I put together 4 online courses as a substitute to a live workshop.

LET YOUR PEERS DO THE TALKING

Online courses have an earned reputation as being rather boring, slow and sometimes downright monotonous. Most of us would rather have a live workshop during the workweek, with lots of interaction among the other attendees and the instructor. However, getting to the workshop location, and breaking away from the office, aren’t always possible – for you or for me. So, how do you evaluate which online CPE course to take? The easiest way is to check out what your peers have said about the courses.

EVALUATION OF MY ONLINE COURSES HAVE A SCORE OF 100%

At the end of each online course qualifying for CPE I ask the student if the “stated objectives of the course” were met. There has never been a “No” yet…. that’s 100% of the time every student has said that the stated objectives were met. Several students also had other good things to say.

A SAMPLE OF ADDITIONAL COMMENTS MADE BY STUDENTS

1. Film Accounting and Auditing – An Overview

• “Yes. Great introduction of the role the production accountant will play within the overall film production life-cycle.”
• “Yes – it was pretty much an overview. I feel I have a much better understanding of film accounting now.”
• “Yes! Very easy to follow. An excellent intro to the industry.”

2. Film Accounting and Auditing – The Basics

• “Yes, great to see the various sample forms. The workflow charts are also very helpful.”
• “Yes, the detailed explanations of the various forms, as well as the general ledger software, were very helpful.”
• “Yes, very useful. I now have a sound understanding of the basic principles of production accounting.”

3. Film Accounting and Auditing – Intermediate

• “Yes. Great explanation of the inter-relationships between the various reports and overview of the audit plan.”
• “Yes. Enjoyed the course and learned a great deal about auditing productions.”

For more detailed information about the online courses see http://www.filmaccounting.com/filmaccounting-cpe.htm

If you would like to see the stated objectives of the courses I have listed them below, along with links to short YouTube videos describing each of the course’s content.

Cheers,

John

– John has worked on over 50 film and television productions in 6 countries since 1985 on productions big and small. For more information on his credentials see http://www.filmaccounting.com/filmaccounting-cpe.htm

___________________________________________________________________________________

 

An Overview – The Learning Objective Met By 100% of the Students: The participant will understand the overall business cycle of the Film Industry with specific attention on the workflow, general terminology and film industry specific accounting practices of Film and Television Production. No advanced preparation is required. See this short video reviewing the content of this course.

The Basics Course – The Learning Objective Met By 100% of the Students: The participant will be familiarized with the film production processes, forms and control points of a usual film production. With this knowledge the participant will be “up to speed” with the books and records of a usual film or television production.  No advanced preparation is required. See this short video reviewing the content of this course.

The Intermediate Course – The Learning Objective Met by 100% of the Students: (Prerequisite: An Overview) The participant will understand the interaction among the production entity, the approved budget, the production documents (Call Sheets, Daily Production Reports, etc) and the Final Cost Report – prepared by the film production accountant, this is the document audited for film tax credit certification. From this understanding an external auditor will be able to plan the tax credit audit with an understanding of all industry specific factors.  No advanced preparation is required. See this short video reviewing the content of this course.

The Advanced Course – The Learning Objective Met By 100% of the Students: (Prerequisites: An Overview and Intermediate)The participant will have an understanding of various State requirements to certify the production for Tax Credit purposes. From this understanding participants can confidently comply with their own particular locale’s certification requirements. The categories closely examined are Qualified Expenses (Payroll, Non-Payroll, Real Property) as well as Related Party Transactions, Ownership and Sources of Funds. No advance preparation is required. See this short video reviewing the content of this course.

Crossing Over From the Film Budget to the Cost Report

Today, while delivering a 2 day workshop on Movie Magic Budgeting a young Producer, an active Art Director and an experienced Assistant Director all told me that they wanted to understand the workflow between the Film Budget and the Cost Report – actually, the Art Director and the AD, had never even SEEN a Cost Report.

FINANCIAL REPORT CARD

The film production’s very confidential Cost Report is the financial report card issued weekly to the Studio Exec’s, Completion Guarantors, Executive Producers, Tax Credit Auditors/CPA’s, etc. Understanding the workflows behind this document is a fundamental requirement for anyone interested in advancement within the film industry.

MANAGING FILM BUDGETS AND COST REPORTS

I have been doing a series of 6 live webinars for a few years now. It directs the attendee’s attention right to this area of Managing Film Budgets and Cost Reports, disclosing tricks of the trade which just are not available anywhere else. The attendees will review a $9Mil budget from several angles, learning the practical methods of managing a film budget, and it’s immediate cousin, the Cost Report (note that I use the Managing, as opposed to actually manipulating software).

PROFESSIONALS ACTIVE AND INTERESTED IN THE FILM INDUSTRY

The live webinars are not only addressed to professionals working in the business, but also to emerging producers, Certified Public Accountants who would like to understand more about the film industry, and for anyone who wants to “break into” the film industry.

LIVE WEBINARS – RECORDED FOR YOUR REVIEW

Each live webinar is 1 ½ hours long, with voluntary quizzes and lots of interaction. For you CPA’s the live webinars qualify for 9 hours of CPE. Each webinar is recorded for review by the attendees for as long they wish:

–          # 1 of 6, THE FILM PRODUCTION BUDGET INTRODUCED

–          # 2 of 6, INTRODUCING FILM INDUSTRY LABOR UNIONS

–          # 3 of 6, THE CONCEPT OF FRINGES & LABOR HOURS WORKED/PAID

–          #4 of 6, INTRODUCING THE WEEKLY COST REPORT & THE SIX BASIC COST SYSTEMS

–          # 5 of 6, THE COST REPORT – ESTIMATING COSTS TO COMPLETE – EXAMPLES

–          #6 of 6, THE COST REPORT – ESTIMATING IN FILM PRODUCTION

In the final webinar we also discuss some common ways of breaking into this very insular industry.

For more information visit this web site: http://www.talkfilm.biz/filmworkshops5.htm

Cheers / John

John is a 30 year veteran of film production working on over 50 film and television productions in 6 countries. His workshops and book “Walk The Talk” have been well received with many testimonials. See http:///www.filmaccounting.com

CPA OPPORTUNITIES – NEW SEC RULES FOR FILMMAKERS

As of September 23, 2013 the SEC passed rules for the JOBS ACT allowing filmmakers to advertise their fundraising publicly (Billboards, Twitter, LinkedIn, Websites, etc). This is causing a lot of excitement within the film community. What’s scary for filmmakers, though, is the tasks of making “reasonable efforts” to ensure that investors financing the film are “accredited investors”, not to mention the filing of “Form D” with the SEC. How is this an opportunity for CPA’s?

NEW SEC LEGISLATION

General solicitation for the financing of filmmaking has been illegal until recently. In order to comply with the JOBS ACT to create small business in America, the SEC passed Rule 506 (c)  to allow general solicitation and advertising for a private placement offering. However, in a Rule 506(c) private offering all of the purchasers must be accredited investors and the issuer must take reasonable steps to determine that the purchaser is an accredited investor. The SEC amendments can be read at this link

ACCREDITED INVESTOR

The SEC has defined an “Accredited Investor” in 8 ways – see this link for a very clear, and easy to read, definition (there are 8 types)  http://www.sec.gov/answers/accred.htm . The most interesting to me is #7: “a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year”.

HERE’S WHERE THE CPA COMES IN – “REASONABLE STEPS”

The SEC makes some suggested “reasonable steps”. Here is a quote from the amendments web page published by the SEC: “Rule 506(c) sets forth a principles-based method of verification which requires an objective determination by the issuer (or those acting on its behalf) as to whether the steps taken are “reasonable” in the context of the particular facts and circumstances of each purchaser and transaction”. You can read more about the verification methods BY CLICKING HERE. A review of the last 2 years tax returns , or a review of bank statements, investments, etc will verify that status. However, accredited Investors will not be comfortable turning over this information to filmmakers directly. This is where a CPA enters the stage.

FORM D FILING WITH THE SEC – A TASK FOR THE CPA

In addition to verifying the Accredited Investor status, the filmmaker must also file a Form D with the SEC. See http://www.sec.gov/answers/formd.htm for the details of the Form D, as well as a download of the form itself. As you can see from the form, it is a relatively simple online filing – at least for a CPA. In my experience, most filmmakers would want help with the form. Again, this is an opportunity for a CPA. There are proposals to file the Form D at least 3 times: 15 days before applying exemption under Rule 506 (c), 15 days after the first investment, 30 days after the funding has been concluded and whenever a change to the solicitation materials has been made. For more info click here.

PROPOSED NEW RULES TO ENHANCE THE SEC’S ABILITY TO EVALUATE

At the time of this writing (Oct-2013) there are a few additional proposals, which you can see here http://www.sec.gov/news/press/2013/2013-124-item3.htm . The SEC does a surprisingly good job of writing their articles – they’re very easy to read. Since we’re on the topic of opportunities for the CPA, please read the proposals with an eye towards creating new business.

FINALLY, THE “BAD ACTOR” DISQUALIFICATION

Your client, the filmmaker, is also responsible to ensure that anyone participating in the fundraising does not fall under the BAD ACTOR provisions. This includes investors, investment advisers, producers or anyone else mentioned in the fundraising documentation. BAD ACTORS are individuals that have committed a crime, fraud, etc. On July 15, 2013 Morrison Foester wrote a very short, clear article about this: to see this article click here. There are simple ways to discover this information, and I would suggest that the CPA would be able to perform this discovery for the client as well as the above services.

Cheers / John

To learn more about Film Accounting and Auditing see  http://www.filmaccounting.com/filmaccounting-cpe.htm  This is definitely not the same old CPE!

My next workshop is in Orlando Oct 12^th and 13^th, 2013. Learn more about the workshops at http://www.filmaccounting.com

The New CPA and the Film Industry

INTRODUCTION

The new CPA is fully aware of expanding markets and breaking the mold of tradition. The outbreak of videos used to promote CPA firms is witness to an interest in reaching new public. As a result, there is a growing interest in the business of filmmaking. Where are the film companies? What sort of audit services do they need? What are the film accounting principles and practices unique to the industry?

THE MAJORS AND THE INDEPENDENTS:

The film industry is generally viewed as Hollywood in America. It’s true that Hollywood drives a big part of the machine, but over the past several years the production of feature films and television programming has branched out dramatically.

There are three primary divisions of the industry:

1. The “Majors”: the Majors both produce and distribute a substantial amount of their own products. They are generally defined as “The Big Six”: Sony Pictures (Columbia), Disney, Warner Bros, Universal/NBC, Paramount, and 20th Century Fox.

2. The “Mini-Majors”: There are always companies that are striving to join the Big Six – such as Lionsgate, Dreamworks and The Weinstein Company. There is also the example of MGM, which has fallen from a Major status to a Mini-Major status.

3. The Independents (“Indies”): The status of “Indie” is a general umbrella of all other film and television production companies. The Indies often approach the Majors and Mini-Majors to land distribution deals, or some form of financing/participation of their projects (usually referred to as “Pick-Ups”.) Successful Indies often make distribution deals with, or even bought outright by, one of the majors or mini-majors. For example, Tyler Perry Studios, an Independent based out of Georgia, has a great deal with Lionsgate, who in turn, has distribution deals with the Majors.

ALL OF THESE DIVISIONS REQUIRE AUDITS FOR FILM TAX INCENTIVES:

Almost all of the States that offer film tax incentives require some form of audit BY A STATE LICENSED CPA. So, regardless of the relationship of the production company, big or small or in-between, every film or television production requires your services as an auditor in your State (the only exception that comes to me right now is New York State).

REQUIREMENTS:

The legislation which requires the State licensed CPA very often has the following quote taken from the State of Connecticut (almost exactly the same wording exists for California, Louisiana, Michigan, etc):

“… the auditor must have sufficient knowledge of accounting principles and practices generally recognized in the film, television, commercial and digital media industry.“

The State of Connecticut was at a loss as to how to address this conundrum (i.e. the auditor must have exposure, but has never had exposure before). So, the State administrator, Ed Ruggerio, requires that only those CPA’s who have done my course, “Film Accounting and Auditing” are permitted to be listed on the State web site as qualified auditors for State Film Tax Credits. As much as I was honored by this acknowledgement, it was hard for me to break off my commitments, travel to Connecticut, and deliver a live workshop.

FILM ACCOUNTING PRINCIPLES AND PRACTICES:

As a result, I have taken much time and effort to break the live workshop into four online self-study courses which are AICPA compliant for CPE. I have taken the material and broken it into the following categories:

Film Accounting and Auditing – 1. An Overview, 2. The Basics, 3. Intermediate/Supervisory Level and 4. Advanced – Film Tax Incentives.

I have worked in the film industry for almost 30 years, in 6 different countries, on every size of film and television production. As a result, I have made every effort to keep the courses from being pedantic or ponderous. From the testimonials I can say that it has been worth the effort.

To find out more visit: http://www.filmaccounting.com/filmaccounting-cpe.htm

Cheers / John

Jobs, Wages, Revenues Up 35% Over Past 5 Years In Television Industry

STATS WHICH SHOW INCREASE IN REVENUES IN THE TELEVISION INDUSTRY

I have been searching for American statistics to prove that the television industry has been growing over the past 5 years, but I just couldn’t make my way through the corporate publications – it was either too much, limited to just one Major Studio or generalities (like Variety Magazine). So, I was happy to see a recent publication which clearly showed a 35.4% increase in revenues in the television industry. On April 11, 2013 Canadian government commission (CRTC) published an indisputable increase in revenues, jobs and wages in the television programming industry in Canada.

CRTC STATS – CAN WE EXTRAPOLATE THAT TO THE USA?

Here’s what I pulled from the CRTC web site:

Year                2010         2011        2012
Jobs               5,495       5,900       6,176
Wages       $415Mil  $461Mil  $487Mil
Revenues   $3.5Bil    $3.7Bil   $3.97Bil

CANADA’S POPULATION OF 34.5 MILLION IS LESS THAN CALIFORNIA’S BASE OF 38 MILLION

Just to remind you – Canada, in spite of it’s enormous land mass, has a lower population base than the State of California (34.5Mil in Canada and 38Mil in California). So, if you want to extrapolate to the USA multiply the figures above by 9 or 10 to reach the same population base of America. Also, don’t forget that at least 80% of the television content watched in Canada is America. (On average in Canada, out of the top 30 highest rated shows, only Hockey, the news and 3 to 4 other shows are produced as Canadian content – all the rest are American shows.)

This quote, from the same web page, tells a very positive story:

DIRECT QUOTE – SEE THE WEB SITE

“OTTAWA-GATINEAU, April 11, 2013 — Today, the Canadian Radio-television and Telecommunications Commission (CRTC) released statistical and financial summaries for Canadian specialty, pay, pay-per-view (PPV) and video-on-demand (VOD) television services.

Revenues for these television services have climbed by 35.4% over the past five years to reach nearly $4 billion in 2012….  In 2012, Canadian specialty, pay, PPV (Pay Per View) and VOD (Video On Demand) television services created 226 new jobs, directly employed 6,176 people and paid $487 million in salaries.”

Cheers / John

Film Accounting 101 – Detroit (Travel Discount)

The Film Accounting 101 week-end workshop (followed by 6 live on-line webinars) is something that I’ve been doing for a few years now. You can learn more about it here. I have delivered this workshop in Los Angeles, New York, Orlando, New Orleans and Toronto. Currently, we’re going back to Detroit again on Feb 2nd and 3rd, 2013.

We realized that some of you are coming from quite far away from Detroit. To help make it easier for you we are offering a 20% travel discount on a trial basis. The link for the web page that tells you all about the workshop, plus the 20% discount, is here:

Here is the link to include in your outflow. It will help us get a high sign up rate.

 

http://www.talkfilm.biz/20film101page.htm

 

Cheers / John

 

 

Film Accounting and Auditing Workshop

Some time ago I found that the Chartered Accountants and Certified Public Accountants were interested in auditing film/TV film productions for their local Film Tax Credit Incentives. The bug was that they didn’t know anything about the unique film production business. The terminology and industry specific accounting practices were completely foreign to them.

As a result I started delivering a one-day workshop for CPA’s and CA’s.

To learn more see this link http://www.talkfilm.biz/filmworkshops2.htm  – watch the video testimonials, as well as the “Major Topics” etc.

The next workshop is Saturday, September 22, 2012. Hope to see you there / John