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Entertainment Lawyers Seek Clarification in Bonus Depreciation Regs

AUG. 23, 2018

Entertainment Lawyers Seek Clarification in Bonus Depreciation Regs

DATED AUG. 23, 2018
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August 23, 2018

CC:PA:LPD:PR (REG-104397-18)
Room 5203, Internal Revenue Service
P.O. Box 7604, Ben Franklin Station
Washington, D.C., 20044

Re: Comments on Section 168(k) Proposed Regulations

To Whom it May Concern:

This letter is written on behalf of the Motion Picture and Television Tax Institute (“MPTTI”), an organization in existence from the 1960s and comprised of tax professionals that practice in the entertainment industry with an emphasis on independent motion picture and television companies. This letter is to provide comments of the MPTTI to two aspects of the proposed regulations under Section 168(k).

Section 168(k)(2)(A)(i)(iv) states that “qualified property” includes a qualified film or television production (as defined in subsection (d) of section 181) “for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection.” Proposed regulation §1.168(k)-2(b)(2)(E) just repeats this phrase. Section 168(k) now permits a taxpayer to expense the cost of acquiring property previously placed in service by an unrelated party, so the question is, assuming that a film is otherwise a qualified film, when did it have to be produced by an unrelated party in order to permit the cost of acquiring it now to be expensed? There are three possible alternatives:

1. One potential answer is that it could have been produced at any time, even decades ago, since there is no beginning time limit on the face of section 181.

2. Another potential answer is that the film must have been produced after the original effective date of section 181 (October 22, 2004), at a time that it was limited to films with budgets of less than $15 million.

3. A third potential answer is that the film must be produced after the effective date of the amendment to section 181 (January 1, 2008), when it was amended to apply to the first $15 million of the cost of a film, regardless of the budget.

The MPTTI respectfully requests that the regulations under section 168(k) adopt the first alternative discussed above (no time limit), given that (a) there is no beginning time limit on the face of section 181 and (b) there is no time limit on when other personal property that qualifies under section 168(k) must have been produced.

The MPTTI also requests confirmation in the section 168(k) regulations that a license is “property” for purposes of permitting a licensee to deduct the cost of acquiring a license to a qualified film if the other requirements for deduction are met. Thus, section 168(k) would permit the immediate deduction of the cost of acquiring a license of video on demand rights for a limited term or the cost of acquiring a license of rights in a foreign country for a limited term. See, e.g., E.I. Dupont de Nemours & Co. v. U.S., 471 F.2d. 1211 (Ct Cl. 1973) (even a non-exclusive license is “property” for purposes of section 351).

Please feel free to call me with questions on this letter or any other matters that impact the entertainment industry, and I can coordinate answers from the MPTTI.

Sincerely,

Sky
Schuyler M. Moore
Greenberg Glusker Fields Claman & Machtinger LLP
Los angeles, CA

cc:
MPTTI Members

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