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Film Tax Credits Withdrawal Disputed In US Court

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

12 November 2009


Canadian film producer Kevin DeWalt has asked a judge to issue temporary injunctive relief to force the Iowa Department of Economic Development to honor a signed agreement that entitles his film project "Clean Out" to film tax credits.

In September 2009, Governor Chet Culver closed the Iowan Film Office and forced resignations following the discovery of irregularities in the bookkeeping and inappropriate spending.

DeWalt alleged he had already spent USD3m during pre-production, relying on the USD6.5m tax credits offer in writing. Filming was due to start in October on the USD18.7m crime caper; timing was of the essence because of the onset of winter and the actors' other commitments according to court documents.

The Iowan "Film, Television and Video Promotion Program" had been promoted as "half-priced filmmaking," because up to 50% in income tax credit certificates was on offer, which was off-settable against tax obligations or transferable to any Iowa taxpayer at the going rate. The closure of the Program in September was amid allegations of inappropriate luxury vehicles purchases and expenditure claims, accounting irregularities, and tax credits not issued in accordance with the originally approved conditions. Two top officials at the Iowa Department of Economic Development resigned, the head of the tax credit program was fired, and all tax credits were suspended while an investigation was in progress.

A majority of US states offer some form of tax incentive or rebate for film and television production, and Canada competes aggressively for film business through its own incentives packages. However, under the pressure of ever tighter budgets, these have come under increasing scrutiny of late. Wisconsin and New Mexico states claim considerable success for their programs through researching outcomes. According to a New Mexico study, their 25% tax credit yields USD1.50 for every dollar spent. In Wisconsin similar research suggested a USD1.70 yield. No such research had been commissioned in Iowa.

DeWalt said in court that he still had a "small window" to make the film – if he could begin shooting by the end of November. If not, he stood to lose one of his major stars for 12 months, and the project and his credibility among investors for future productions would be lost. Julie Pottorff, a deputy Iowa attorney general, arguing on behalf of the Iowan government in court, said the state's film tax credit program was "in turmoil" and a criminal investigation was in hand. The judge gave her until the end of the week to file written briefs and said his ruling would follow soon after that.

A comprehensive report in our Intelligence Report series examining tax-sheltering arrangements for investors, including Venture Capital, Forest Finance and Film Finance in a number of key jurisdictions, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report5.asp

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