Entertainment, media and communications

June 2012
Taxpayers have struggled with the administrative requirements of complying with the rules for making a valid Section 181 election ever since the provision was enacted in 2004.

An election under Section 181 allows a taxpayer to treat the cost of any qualified film or television production as an immediate expense. The election must be made by the extended due date of the taxpayer’s return which production costs are incurred.

The IRS regulations contain detailed rule on the information that needs to be supplied to make a valid election, such as the date production costs were first incurred, the amount of qualified compensation paid, and specific production cost information related to costs incurred in designated higher-limit areas.

A recent Tax Court ruling highlights a situation in which the IRS attempted to invalidate an election because the taxpayer had not provided all of the information required by the regulations. Regardless, the Tax Court ruled the taxpayer made a valid election based on the fact that the taxpayer had substantially complied with election requirements (Storey v. Commissioner, T.C. Memo 2012-115).

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