Our NYC tax accountants and NYC CPA provide the following guidance on Reg. 199 deductions for the film industry. For purposes of the domestic production activities deduction (DPAD), domestic production gross receipts (DPGR) from qualified production activities include the taxpayer’s gross receipts derived from the lease, rental, license, sale, exchange or other disposition of any qualified film produced by the taxpayer. Amendments to the final regulations on DPAD provide more flexible tests for film-related compensation, taxpayer participation in production, and related safe harbors.
In general, a qualified film is any property in which not less than 50 percent of the total compensation relating to the property is compensation for services in the United States. A film must be both a “qualified film” and “produced by the taxpayer” in order for the gross receipts to qualify as DPGR. A qualified film is treated as “produced by the taxpayer” if the production activity performed by the taxpayer is substantial, taking into account all the facts and circumstances, including the relative value added by, and the relative cost of, the taxpayer’s production activity, the nature of the qualified film, and the nature of the production activity that the taxpayer performs.
If a safe-harbor test is satisfied, a film is treated as qualified and as produced by the taxpayer. The application of the new compensation formula used to determine the film production component of the DPAD requires a thorough understanding of the qualification requirements, including the safe harbor provision.
We can explain the tax savings opportunities that exist for your business, and discuss the alternatives available in order to maximize your DPAD. Please call our NYC CPA office at your earliest convenience to make an appointment with a CPA in NYC.