Tax-Cut Plan Includes Provision For Hollywood Movie Industry

by Mike Godfrey, Tax-News.com, Washington

26 May 2003

Contained within the Senate version of the tax cut bill is a provision that will allow the Hollywood movie industry to continue using a favourable accounting technique enabling them to write off "residuals and participations" paid to actors, producer and directors in their depreciation schedules.

The measure, if passed into law would end uncertainty over the tax break resulting from certain legal ambiguities and questions raised by the Internal Revenue service. The Joint Committee on Taxation has estimated that the proposal would cost the Treasury $570 million over the next decade, although it is not expected to be a major shock to the federal finances, as the measure has been in place in one form or another for around forty years.

The studios have been lobbying lawmakers unsuccessfully for some years to get the government's 'clarification' written into law in an attempt to stave off challenges from the IRS which has questioned whether the accounting procedure has been used in accordance with the law. However, it was the IRS' own amendment to the tax code in 1996 that led to much of the confusion, with the industry complaining that it was too ambiguous. The measures contained in the latest tax bill should help to crystallize these rules.

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