Section 181: Will we have Film Incentives for 2016?

By September 26, 2016Production

Path of Enlightenment

Timing is everything for filmmakers interested in financing, so I thought I’d do a little house cleaning with a couple of blogs about film finance and production. This one is about film incentives and Section 181 of the US code, which is the legislation periodically passed by the US Congress that lets film investors deduct all the costs of a film investment in the same year. It provides HUGE incentives for accredited investors and helps you raise the money you need. This post is intended to give you a comprehensive overview.

Each year we live with some uncertainty about whether the film incentives legislation will come into play again and whether they might be retroactive. I think they pass the legislation at the 11th hour to minimize the number of applicants to a fixed budget. Someone who knows more about it may tell you differently; this is just my “healthy” skepticism at play.

“And one last piece of advice: Don’t be that artist who says, ‘I don’t have a head for business’. Don’t be that guy. No. Don’t. No. Bad artist. Go sit in the corner until you’ve learned your lesson.”

If they do pass the legislation at the last minute, like they did the last time, you have to be ready to take advantage of it, and it takes a lot to get ready, so my advice is get ready now and cross your fingers that they grandfather in all of 2016. DO NOT raise money with investors by promising your film will be 181 ahead of time. You will get in trouble for that. You can raise money, just don’t make false promises. SPENDING is what triggers 181, so once you are a 181 film, you can raise money forever after that.

I am not an attorney! I am one of those defunct economists — how useless is that? So, you will want to treat this information as suggestive and check all these details with your attorney, but I do list my sources here below. The bottom line is that you can qualify a film if you meet the criteria which I will outline here. Your teaser (film treatment, trailer) also qualifies, but you have to put it in your budget for the qualifying feature. Also for certain questions, you will have to contact an accountant. You can call Todd Hein. He’s a CPA, an expert in 181, who can guide you in how to file properly. He is with Volkoff Manyak Wade & Co LLP In Sherman Oaks, CA and his number is 818-325-8479. My information comes from four main sources: Corky Kessler, the entertainment attorney; the IRS website; Cornell’s publication of the US tax code; Filmmaker Magazine.

What you need to file for 181 are:

  • Budget – it can change;
  • Screenplay — it can change;
  • A separate LLC for each film. Among the documents you will need for 181 compliance are an investor questionaire, operating agreement, subscription agreement, and manager questionaire. Each project LLC has to be done separately. Check with your attorney about these documents. The point is you must document every thing you spend, and you must make absolutely certain your investors are accredited. Keep in mind this is, in the end a somewhat subjective process. Some legal experts are going to judge whether you qualify after the fact.
  • One (1) day of principal photography with dialog that appears in the screenplay that you submit – it doesn’t have to appear in the final movie.

If you can get 5 films (or more) prepared in the above manner, and shoot one day of principal photography with DIALOG for each, then you could theoretically qualify for 2016 for all five (or more).

Keep in mind:

  • You can finish making the movie in years to come – no deadline – you can raise the money for a 181 movie in future years, once it’s grandfathered in;
  • Spending the money in a given year, not raising it, triggers 181;
  • You can have no sex acts in your movie, however you can simulate  sex. An attorney must be consulted to help you draw the line, and again, it’s a subjective process.

The credit applies to accredited investors, which is verified by the questionnaires, the attorney, and the CPA. The production company must be a business entity under the name of the film production. The production company must shoot at least one production company day’s worth of a date stamped dialogue sound scene by 12/31/2016, assuming Congress passes the legislation again this year!

So, if you are hopeful, or if you know something I don’t: Get ready! At the very least, you’ll have tackled the ‘white bull’ of bureaucracy and learned a thing or two about the business side of film production.

And one last piece of advice: don’t be that artist who says, ‘I don’t have a head for business’. Don’t be that guy. No. Don’t. No. Bad artist. Go sit in the corner until you’ve learned your lesson.