As quickly as cameras flash at the Oscars, Congress passed the Tax Cuts and Jobs Act (“TCJA”) and left taxpayers holding the bag in some areas. Unlike in the movies, taxpayers cannot do a reshoot if the first take is not perfect. After almost two years, Congress may again pass additional legislation within a 48-hour period, which may resolve certain issues that have arisen in Hollywood since the TCJA.
On December 18, 2019, the House passed tax legislation as part of an omnibus package that included, among other things, extending Internal Revenue Code Section 181 (“Section 181”) retroactively from 2018 through 2020, which ultimately means that taxpayers may be able to elect Section 181 treatment for the 2019 and 2020 tax years. The Senate is expected to pass this legislation on December 19, 2019. Many taxpayers may wonder, “why do we need Section 181 if qualified U.S. film/TV productions (and live theatrical productions) already are eligible for bonus depreciation under the TCJA?”
For those who have already forgotten about Section 181, prior to the TCJA production companies were eligible to elect to deduct production expenses of certain qualified U.S. film/TV productions (and live theatrical productions) as and when incurred (subject to a $15m cap) in lieu of recovering such costs over a 10-year period. While Congress did not renew Section 181 beyond December 31, 2017, the TCJA included such qualified productions as property eligible for bonus depreciation.