January 14, 2014

Finding Money, Pitching Investors, Building Relationships: Being Smart with Taxes & Section 181

Finding money is often one of the toughest tasks many independent film producers face, as well as one of the most critical. You need money to make movies, and you need to make movies to build a successful career. Building relationships with investors is one big, important step you can take to help find money on an ongoing basis for your projects and further your cause.

This is a guest post by Fred Siegel, CPA.

Bring up the following topics to an aspiring, developing, or struggling producer, however, and don't be surprised to hear the following answers: "Finding Money" -- Where?!!!; "Pitching Investors" -- How?!!; "Building Relationships" -- Huh???

Given the critical role of money, it is wise to make building strong, ongoing relationships with investors a key part of your thinking. You want to work with investors who will invest not just in this project, but in the next one and the one after that as well. Investors who invest regularly in your projects are effectively investing in more than just your projects; they are also investing in you.

Also, we are in a new year, 2014, and Section 181 of the tax code has expired, with questions remaining as to whether it will be renewed. What follows are some insights into Section 181.

Being Smart with Taxes & Section 181

A key topic in finding money and pitching investors in today's film financing environment, and by extension, building relationships with investors, is taxes. Taxes are an increasingly important piece of a producer's overall financing plan and pitch. Being smart with taxes can help you bring valuable benefits and protections to your investors, to your project, and to you.

A few quick words: Taxes can be tricky and fraught with tripwires and unanticipated dangers. There also appears to be a good amount of misinformation regularly floating around the industry and the Internet, sometimes leading to seriously misinformed decisions or producers being entirely unaware of larger issues that may blow up.

One key "tax" area that has commonly been part of producers' pitches to investors in recent years is known as "Section 181." Section 181 refers to a federal tax law that pertains specifically to the motion picture industry. Being smart about "Section 181" today should begin with:

  1. A basic understanding of what "Section 181" is, how producers have been "pitching" it to investors, and the basic benefit of Section 181
  2. The 12/31/31 expiration of Section 181, what that means, what exceptions apply, and whether your project can utilize Section 181
  3. The risks and potential disasters for your investors, your film, and *you,* of using Section 181 improperly (e.g., finding that the IRS doesn't agree with how you view the world and your Section 181 election, and the extremely costly consequences that may trigger).

Section 181 & Pitching Investors

Expiration; Principal Photography; "Grandfathering"

Not Being Smart. Invalid Section 181 Election. Disaster Example. -- For Your Investors, Your Film, and *you*

Being smart with taxes is one big way to help build relationships with investors and find money for your projects, to the benefit of your films, your investors, and so importantly to you and the furtherance or continuing success of you film producing career. Make an indie film/tax/business professional one of the collaborators that are a key and regular part of your team.


Fred Siegel is an indie film, tax, and business consultant and founder of Fred Siegel, CPA, specializing in key tax and business issues for producers and content creators. The focus of the firm is working with independent filmmakers and their development and production companies, film financing companies, film funds, and creative folk.

Fred Siegel, CPA
Dealing With the Business of Film
Consulting, Financing, Tax Credits, Taxation, Accounting
Fred@FredSiegelCpa.com New York, NY

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Your Comment

6 Comments

That's great, we really appreciate for that especially here in Africa. Hope this is our own chance

January 14, 2014 at 10:15AM, Edited September 4, 11:45AM

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UCEDA Film Company

This is one of the most useful posts you've put up in a while.
Your accountant is your friend people!

January 14, 2014 at 12:45PM, Edited September 4, 11:45AM

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marklondon

Good article and interview about Section 181 if this was 2013. It's obvious that the interview took place last year. Section 181 expired 12/31/2013 and it hasn't been extended. If principal photography didn't start before then, this election is no longer available. This article should've been posted in early or mid 2013 when this interview was probably produced.

January 14, 2014 at 3:46PM, Edited September 4, 11:45AM

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Taxpert

Understand your point. The post is getting at a much bigger issue, as the title describes. Section 181 is just a vehicle used to make the point in the post. Also, not sure if you work with creative folk, but there are plenty of people who don't know that Section 181 expired in certain cases; there are plenty of people who think that Section 181 expired in all cases - that is not true; and there are plenty of people that think they have safely and reliably "grandfathered" their film, when they very possibly may not have done so. Part 3 of the video elaborates on that issue and works to inform the filmmaker of the larger issues and potential costs. Artists are all too often handed incomplete, misleading and sometimes flat out wrong information. They typically work really hard to hone their craft really well. They deserve good information to help them make good decisions, not just easy answers that overlook or avoid details. Section 181 is arguably a great vehicle to foster that discussion.

January 14, 2014 at 6:28PM, Edited September 4, 11:45AM

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AND it could still be relevant because Section 181 had expired in 2012-and then was retroactively renewed for 2013. So that could theoretically happen again.

January 14, 2014 at 8:52PM, Edited September 4, 11:45AM

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Dave Mueller

why do they need to renew the bill if it wont expire until 2031? haha ;)

January 14, 2014 at 7:08PM, Edited September 4, 11:45AM

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jerod