[Federal Register Volume 76, Number 202 (Wednesday, October 19, 2011)]
[Rules and Regulations]
[Pages 64816-64818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-26973]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9552]
RIN 1545-BJ24


Deduction for Qualified Film and Television Production Costs

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations 
relating to deductions for the cost of producing film and television 
productions. These temporary regulations reflect changes to the law 
made by the Tax Extenders and Alternative Minimum Tax Relief Act of 
2008, and affect taxpayers that produce films and television 
productions within the United States. The text of these temporary 
regulations also serves as the text of the proposed regulations set 
forth in the notice of proposed rulemaking on this subject in the 
Proposed Rules section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective on October 18, 
2011.
    Applicability Dates: For dates of applicability, see Sec.  1.181-
6T.

FOR FURTHER INFORMATION CONTACT: Bernard P. Harvey, (202) 622-4930 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 1 to provide 
regulations under section 181 of the Internal Revenue Code of 1986 
(Code). Section 181 permits the deduction of certain production costs 
by the producer of a qualified film or television production.
    Section 181 was added to the Code by section 244 of the American 
Jobs Creation Act of 2004, Public Law 108-357 (118 Stat. 1418) (October 
22, 2004), and was modified by section 403(e) of the Gulf Opportunity 
Zone Act of 2005, Public Law 109-135 (119 Stat. 2577) (December 21, 
2005). Section 502 of the Tax Extenders and Alternative Minimum Tax 
Relief Act of 2008, Public Law 110-343 (122 Stat. 3765) (October 3, 
2008) further modified section 181 for film and television productions 
commencing after December 31, 2007, and extended section 181 to film 
and television productions commencing before January 1, 2010. Section 
181 was extended again to film and television productions commencing 
before January 1, 2012, by section 744 of the Tax Relief, Unemployment 
Insurance Reauthorization, and Job Creation Act of 2010, Public Law 
111-312 (December 17, 2010).
    On September 30, 2011, the IRS and the Treasury Department 
published in the Federal Register (TD 9551, 76 FR 60721) final 
regulations relating to deductions for the cost of producing film and 
television productions under section 181 as enacted by the American 
Jobs Creation Act of 2004 and modified by the Gulf Opportunity Zone Act 
of 2005.

Explanation of Provisions

    Section 181 permits an owner of a qualified film or television 
production to elect to deduct production costs paid or incurred by that 
owner for the year the costs are paid or incurred, in lieu of 
capitalizing the costs and recovering them through depreciation 
allowances. For a qualified film or television production that 
commenced before January 1, 2008 (a ``pre-amendment production''), this 
deduction is available

[[Page 64817]]

only if the aggregate production costs paid or incurred by all owners 
do not exceed $15 million ($20 million if a significant amount of the 
production costs are paid or incurred in certain designated areas) for 
each qualified production (the ``aggregate production costs limit''). 
For productions commencing on or after January 1, 2008, the aggregate 
production costs limit does not apply; instead, the aggregate deduction 
under section 181 for production costs paid or incurred by all owners 
of a qualified film or television production is limited to $15 million 
($20 million if a significant amount of the production costs are 
incurred in certain designated areas) for each qualified production 
(the ``deduction limit''). A film or television production 
(``production'') is a qualified film or television production if at 
least 75 percent of the total compensation of the production is 
compensation for services performed in the United States by actors, 
directors, producers, and other production personnel.
    These temporary regulations amend Sec.  1.181-1 to define the term 
``post-amendment production'' and specify that the aggregate deduction 
under section 181 (rather than the amount of aggregate production 
costs) is subject to the dollar limits imposed under Sec.  1.181-1(b). 
The temporary regulations also amend Sec. Sec.  1.181-0 (table of 
contents) and 1.181-6 (effective date provisions).

Effective Date

    These temporary regulations apply to qualified film and television 
productions for which principal photography or, for an animated 
production, in-between animation, commenced on or after October 18, 
2011. An owner may choose to apply these temporary regulations to 
qualified film or television productions commencing on or after January 
1, 2008, and before October 18, 2011.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) and (d) of the Administrative Procedure 
Act (5 U.S.C. chapter 5) does not apply to these regulations. For 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
please refer to the Special Analyses section of the preamble to the 
cross-reference notice of proposed rulemaking published in the Proposed 
Rules section in this issue of the Federal Register. Pursuant to 
section 7805(f) of the Code, these temporary regulations have been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Bernard P. Harvey, 
Office of Associate Chief Counsel (Income Tax and Accounting). However, 
other personnel from the IRS and the Treasury Department participated 
in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.181-1 is amended by revising paragraphs (a)(1)(ii), 
(a)(6) and (b)(1)(ii) and (b)(2)(vi) to read as follows:


Sec.  1.181-1  Deduction for qualified film and television production 
costs.

    (a) * * *
    (1) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.181-
1T(a)(1)(ii).
* * * * *
    (6) [Reserved]. For further guidance, see Sec.  1.181-1T(a)(6).
* * * * *
    (b) * * *
    (1) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.181-
1T(b)(1)(ii).
* * * * *
    (2) * * *
    (vi) [Reserved]. For further guidance, see Sec.  1.181-
1T(b)(2)(vi).
* * * * *
    (c) * * *
    (2) [Reserved]. For further guidance, see Sec.  1.181-1T(c)(2).
* * * * *

0
Par. 3. Section 1.181-0T is added to read as follows:


Sec.  1.181-0T  Table of contents (temporary).

    This section lists the entries for Sec. Sec.  1.181-1T and 1.181-
6T.


Sec.  1.181-1T  Deduction for qualified film and television production 
costs (temporary).

    (a) through (a)(5) [Reserved]. For further guidance, see entries 
for Sec.  1.181-1(a) through (a)(5).
    (6) Post-amendment production.
    (a)(7) through (b)(1)(i) [Reserved]. For further guidance, see 
entries for Sec.  1.181-1(a)(7) through (b)(1)(i).
    (ii) Post-amendment costs.
    (b)(1)(iii) through (c)(1) [Reserved]. For further guidance, see 
entries for Sec.  1.181-1(b)(1)(iii) through (c)(1).
    (2) Post-amendment production.


Sec.  1.181-6T  Effective/applicability dates (temporary).

    (a) In general.
    (b) Application of temporary regulations to pre-effective date 
productions.

0
Par. 4. Section 1.181-1T is added to read as follows:


Sec.  1.181-1T  Deduction for qualified film and television production 
costs (temporary).

    (a)(1)(i) [Reserved]. For further guidance, see Sec.  1.181-
1(a)(1)(i).
    (ii) This section provides rules for determining the owner of a 
production, the production costs (as defined in paragraph (a)(3) of 
this section), the maximum amount of aggregate production costs (as 
defined in paragraph (a)(4) of this section) that may be paid or 
incurred for a pre-amendment production (as defined in paragraph (a)(5) 
of this section) for which the owner makes an election under section 
181, and the maximum amount of aggregate production costs that may be 
claimed as a deduction for a post-amendment production (as defined in 
paragraph (a)(6) of this section) for which the owner makes an election 
under section 181. Section 1.181-2 provides rules for making the 
election under section 181. Section 1.181-3 provides definitions and 
rules concerning qualified film and television productions. Section 
1.181-4 provides special rules, including rules for recapture of the 
deduction. Section 1.181-5 provides examples of the application of 
Sec. Sec.  1.181-1 through 1.181-4, while Sec.  1.181-6 provides the 
effective date of Sec. Sec.  1.181-1 through 1.181-5.
    (2) through (5) [Reserved]. For further guidance, see Sec.  1.181-
1(a)(2) through (a)(5).
    (6) Post-amendment production. The term post-amendment production 
means a qualified film or television production commencing on or after 
January 1, 2008.
    (7) [Reserved]. For further guidance, see Sec.  1.181-1(a)(7).
    (b)(1)(i) [Reserved]. For further guidance, see Sec.  1.181-1 
(b)(1)(i).
    (ii) Post-amendment production. Section 181 permits a deduction for 
the first $15,000,000 (or, if applicable under paragraph (b)(2) of this 
section,

[[Page 64818]]

$20,000,000) of the aggregate production costs of any post-amendment 
production.
    (iii) [Reserved]. For further guidance, see Sec.  1.181-
1(b)(1)(iii).
    (2)(i) through (v) [Reserved]. For further guidance, see Sec.  
1.181-1(b)(2)(i) through (b)(2)(v).
    (vi) Allocation. Solely for purposes of determining whether a 
production qualifies for the higher production cost limit (for pre-
amendment productions) or deduction limit (for post-amendment 
productions) provided under this paragraph (b)(2), compensation to 
actors (as defined in Sec.  1.181-3(f)(1)), directors, producers, and 
other relevant production personnel (as defined in Sec.  1.181-3 
(f)(2)) is allocated entirely to first-unit principal photography.
    (c)(1) [Reserved]. For further guidance, see Sec.  1.181-1(c)(1).
    (2) Post-amendment production. Amounts not allowable as a deduction 
under section 181 for a post-amendment production may be deducted under 
any other applicable provision of the Code.

0
Par. 4. Section 1.181-6T is added to read as follows:


Sec.  1.181-6T  Effective/applicability dates (temporary).

    (a) In general. (1) Except as provided in paragraph (b) of this 
section, Sec.  1.181-1T applies to productions, the first day of 
principal photography for which occurs on or after October 18, 2011, 
and before the date of expiration of section 181 as provided in section 
181(f). For an animated production, this paragraph (a) applies by 
substituting ``in-between animation'' in place of ``principal 
photography.'' Productions involving both animation and live-action 
photography may use either standard.
    (2) The applicability of Sec.  1.181-1T expires on October 17, 
2014.
    (b) Application of temporary regulations to pre-effective date 
productions. An owner may apply Sec.  1.181-1T to productions, the 
first day of principal photography (or ``in-between'' animation) for 
which occurs after December 31, 2007, and before October 18, 2011, 
provided that the taxpayer applies all provisions in Sec.  1.181-1T and 
in Sec. Sec.  1.181-1 through 1.181-5 (other than provisions specific 
to pre-amendment productions) to the productions. If a taxpayer does 
not choose to apply Sec.  1.181-1T to a production, the first day of 
principal photography (or ``in-between'' animation) for which occurs 
after December 31, 2007, and before October 18, 2011, then the taxpayer 
must use a reasonable method to take into account the statutory change 
to section 181 under section 502 of the Tax Extenders and Alternative 
Minimum Tax Relief Act of 2008. See Sec.  1.181-6.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
    Approved: September 19, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-26973 Filed 10-18-11; 8:45 am]
BILLING CODE 4830-01-P