US Government Issues New Guidance For Hollywood Producers

by Leroy Baker, Tax-News.com, New York

02 June 2004

The Internal Revenue Service and the US Treasury last week issued new guidance affecting the tax treatment of costs incurred by film producers in the acquiring of scripts, screenplays and other creative properties.

The move by the government comes after a request was submitted on behalf of the Motion Picture Association of America using the Industry Issue Resolution program, and has resulted in two new guidance procedures.

Revenue Procedure 2004-36 provides a safe harbor that permits taxpayers to amortize creative property costs over a 15-year period for properties that are not scheduled for production within three years of acquisition.

Revenue Ruling 2004-58, meanwhile, informs taxpayers that unless they had formally established an intention to abandon the creative property they cannot claim a loss deduction for the capitalized costs of acquiring and developing the property.

Also, should the property become worthless, the taxpayer can only take the related deduction if there is a closed and completed transaction fixed by an identifiable event establishing the worthlessness of the property.

The IIR program, launched in 2001 by the IRS, tackles tax issues submitted by taxpayers, associations and other groups representing businesses. The objective is to resolve frequently disputed or burdensome tax issues.

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