Allowance of loss deduction for development costs of certain creative property

(a)

Film Development Costs

Section 165 of the Internal Revenue Code of 1986 (relating to loss deductions) is amended by redesignating subsection (m) as subsection (n) and inserting the following new subsection:

(m)

Film development costs

For purposes of this section— (1)

In general

If a creative property is not set for production within the 3-year period beginning on the date on which the taxpayer first incurs development costs with respect to the property— (A)the costs of developing such property shall be treated as an expense which is not chargeable to capital account, (B)any cost so treated shall be allowed as a deduction, and (C)such deduction shall be treated as a loss allowable under subsection (a) for the first taxable year beginning after the end of such 3-year period unless it is established that the taxpayer did not intend to dispose of the property. (2)

Recapture

The Secretary shall, by regulations, provide for recapturing the benefit of any loss allowable under this subsection if— (A)the taxpayer begins principal photography with respect to the creative property in any subsequent taxable year, or (B)the taxpayer derives income from the disposition of the creative property (including settlement funds resulting from copyright infringement).

The taxpayer shall pay interest, computed by determining the underpayment of tax which would result solely from disallowance of such loss in the taxable year in which the loss was claimed under paragraph (1), using the adjusted overpayment rate (as defined in section 460(b)(7)), compounded daily, on the underpayment so determined. The preceding sentence shall not apply where the loss claimed under paragraph (1) was $100,000 or less.

(3)

Definitions and special rules

For purposes of this subsection— (A)

Creative property

The term creative property means the intangible right to exploit a screenplay, script, story outline, or motion picture production right to a book, play, or other similar creative property for purposes of potential future film development, production and exploitation. (B)

Film

The term film means a feature film, television special, television series, or similar product (including animated films and television programming) that is sold, licensed or exhibited, whether produced on film, videotape, digital, or other video recording format. Such term shall not include any production for which records are required to be maintained under section 2257 of title 18, United States Code, with respect to any performer in such production. (C)

Development costs

The term development costs means costs that are incurred to acquire, develop, or evaluate whether to exploit creative property. (D)

Set for production

A creative property shall not be treated as set for production until a commitment to fund production is made and active pre-production has begun.

(b)

Effective date

(1)

In general

The amendment made by subsection (a) shall apply to taxable years ending after the date of the enactment of this Act. (2)

Change in method of accounting

In the case of any taxpayer required by the amendment made by subsection (a) to change its method of accounting for its first taxable year ending after the date of the enactment of this Act— (A)such change shall be treated as initiated by the taxpayer, and (B)such change shall be treated as made with the consent of the Secretary of the Treasury.