October 17, 2018

Film tax credits

Some in New Jersey Aren’t Crazy About This Film Tax Credit Situation

A chorus of angry politicians and a national coalition of Italian-Americans called on Gov. Chris Christie Thursday to veto a controversial $420,000 film tax credit awarded to the hit MTV television show “Jersey Shore.” “The governor needs to step up for decency and veto this. If the show wants to go somewhere else, let ‘em,” said state Sen. Joseph Vitale (D-Middlesex), who said it includes negative stereotypes of young Italian-Americans. “Let us just hope against hope that New Jersey taxpayers don’t end up paying for ‘Snooki’s’ bail the next time she is arrested. What a terrible, terrible and misguided waste.” said State Sen. Paul Sarlo (D-Bergen). [NJ.com via DMWT]

A Romantic Tragedy: The Iowa Film Tax Credit Scandal

Once upon a time a little farm state was feeling sad. The state wasn’t poor. It wasn’t lonesome – strange, handsome and glamorous men were always courting her – but something was missing. What could it be?

Then a man whispered in her ear: you need glamor! And it’s in your grasp!

The little state blushed. “How can I, a little farm state, be glamorous like Hollywood?”

The man said: “You can buy glamour!” And he burst into song:

You’ve got glamor
Right here in River City!
Movies start with cash;
If I can be so brash;
Give me some tax credits!

So the smitten little state gave the man transferable film tax credits. She was so excited about glamor, she gave the tax credits away freely, and the glamor came:

We’ve relied on caucuses every four years to bring action and celebrities to town. Now, sightings are anytime, any place.

But something was wrong. The little state sensed amid the cocktail party laughter that the glamorous were laughing at her, not with her. She noticed that the glamorous people were driving away with shiny new cars that she was paying for. And she noticed that the tax credits were getting rather expensive.

So she cut off her tax credits. This made the glamorous people mad, and some of them sued her. But she caught some of the hapless glamorous people and had them locked up. She made the man who whispered in her ear about film credits confess that he had done a bad thing. She got mad at the man who handed out the tax credits for her and tried to put him in jail.

So the little state is sadder, but perhaps wiser. Which has an attraction of its own:

I flinch, I shy, when the lass with the delicate air goes by
I smile, I grin, when the gal with a touch of sin walks in.
I hope, and I pray, for a Hester to win just one more “A”
The sadder-but-wiser girl’s the girl for me.
The sadder-but-wiser girl for me.

The moral of our story? If you fund it, they will come. And loot your purse. And laugh at you.

Iowa Sets the Bar on Film Tax Credit Inefficiency

From known tax credit antagonist, Joe Kristan:

Before the Iowa Film Tax Credit program exploded in scandal in September 2009, the state had granted $31,967,641 in transferable tax credits to filmmakers. Yesterday the State Auditor reported that $25,576,301 were issued improperly — a full 80% of the credits granted.


Quite the field of dreams. Read more over at Tax Update Blog.

Also see:
What Are Your Taxes Buying Hollywood?

Accounting News Roundup: Ex-Dell Accountants Sued by SEC; Mosque Organizer Owes Back Taxes; Tax Reform Panel Disappoints | 08.30.10

SEC sues ex-Dell accountants over fraud [Reuters]
“The U.S. Securities and Exchanges Commission on Friday sued two former top accountants of Dell Inc for manipulating financial statements to meet Wall Street earnings targets between 2001 to 2003.

The regulator said in its suit, filed at the U.S. District Court of the District of Columbia, that former Chief Accounting Officer Robert Davis, and former Assistant Controller Randall Imhoff had maintained a number of ‘cookie jar’ reserves — an improper accounting method in a bid to cover shortfalls in Dell’s operating results.

The SEC said the improper accounting led to Dell having to restate all its financial statements from 20g>Mosque big owes 224G tax [NYP]
“Sharif El-Gamal, the leading organizer behind the mosque and community center near Ground Zero, owes $224,270.77 in back property tax on the site, city records show.

El-Gamal’s company, 45 Park Place Partners, failed to pay its half-yearly bills in January and July, according to the city Finance Department.

The delinquency is a possible violation of El-Gamal’s lease with Con Edison, which owns half of the proposed building site on Park Place. El-Gamal owns the other half but must pay taxes on the entire parcel.”

States See Pickup in Tax Revenue [WSJ]
“Overall tax revenue increased 2.2% in 47 states that have reported their receipts for the three months ended June 30, compared with the same period a year ago, according to a report to be released Monday by the Nelson A. Rockefeller Institute of Government at the State University of New York.

This marks the second quarter in a row of recovering tax collections—and follows five quarters of declines in revenue that hammered local-government budgets. The latest figures are still a mixed bag: Some states continue to see declining revenue, but those were offset by states that saw increases.”

KPMG Accounting Malpractice Verdict Affirmed but $38 Million Damage Award Vacated [Law.com]
Is this what you call a lose/win?

Relax! Iowa Is Funding Hollywood Again [Tax Update Blog]
That is a relief. But Joe Kristan reminds us how things went the first time around, “The film program collapsed in scandal last fall, and the film office director and two filmmakers face criminal charges. Iowa is on the hook for $200 million for credits already committed — about $66 per Iowan. ”


An S.B.A. Loan Program Goes Quietly [You’re the Boss/NYT]
The Small Business Administration’s America’s Recovery Capital Loan program (“ARC”) is being shut down just after a year in operation. At the outset, the 10,000 that were going to made available was thought to be too small. As of August 20th, the program had made less than 8,300 loans and it will be lucky if it reaches 9,000 by the time it expires next month.

Starting a new school year [Accounting Professor]
Fans of Professor David Albrecht has started a new blog; this is the first post.

Obama’s Tax Reform Panel: A Missed Opportunity [TaxVox]
“The paper, approved by the panel this afternoon, is filled with lots of useful information about our flawed tax system but leads nowhere. There are no recommendations. No revenue estimates. And no ownership by President Obama, even though he picked the panel’s members and staffed it with White House aides.

As a result, this report is a huge missed opportunity. Obama might have used this exercise to jump-start a debate over fundamental tax reform. Instead, the report does nothing to fill the policy vacuum that is being filled by an argument over what to do about the decade-old Bush tax cuts.”

New Mexico Didn’t Have Anyone That Could Tame the MacGruber Mullet

Tax credits for film productions may be the bane of Joe Kristan’s existence but that doesn’t mean they can’t be popular (Tax Policy blog reports that 44 states have them).

MacGruber was no exception, however the person in charge of the mane of hair on Will Forte’s head did not result in a “direct expenditure,” so that cost did not qualify for the “Movie Production Incentive.”


The Journal’s Speakeasy Blog learned that keeping a mullet in such pristine condition was not an easy task and apparently there wasn’t a single stylist in the Land of Enchantment qualified to handle it:

We made the movie in Albuquerque, so part of the [tax break] deal is that you’re supposed to use a largely New Mexican crew. But the [MacGruber] wig is an unruly little creation, so Betty Rogers, who’s the head of the hair department at SNL, came to make sure it was tamed every day. She is so good at what she does. So it was basically her and a bunch of great people from New Mexico.

Great people, maybe. Not so enchanting if they can’t handle a mullet.

‘MacGruber’: Star Will Forte on Wigs, Nudity and Tax Breaks [Speakeasy/WSJ]
‘MacGruber’ Talks Tax [Tax Docket]
Movie Production Incentives: Blockbuster Support for Lackluster Policy [Tax Foundation]

These Are the Real Scams: The Dirty Dozen Tax Policy Scams

The IRS just came out with its annual “Dirty Dozen” list of tax scams. It is a useful rundown of current ways for taxpayers to create enormous trouble for themselves. While useful, it’s incomplete. It only looks at scams used by taxpayers. Hence, the Dirty Dozen Tax Policy Scams — in reverse order Letterman-style.

12. State non-conformity to federal rules – The federal tax law is complicated enough. When you have to start over in order to compute your state taxes, that’s a recipe for stupid. When you have to file in multiple states, it’s just crazy. California, the nation’s leader in bad ideas, has led the way ttp://www.rothcpa.com/archives/005787.php”>the bandwagon is getting crowded.


11. Asinine feel-good tax breaks – These are stupid tax rules passed to show us just how caring our legislators are. The bill allowing 2009 deductions for 2010 Haiti relief donations is a classic of the genre – it will cause countless people to double up on the charitable deductions, cause state tax return errors, and might well screw up return processing, all without actually helping Haiti.

10. Heads they win, tails you lose provisions – Sometimes the tax laws are designed to screw you. Gamblers are popular screw-ees. The federal tax law taxes gambling winnings above the line, but allows deductions only “below the line,” as itemized deductions, and then only to the extent of winning. If you don’t itemize, you lose. If you don’t have meticulous records, you lose on audit. And in some states, you just plain lose – you are taxed on winning bets, and losses are ignored.

9. Bait and switch tax treats – The alternative minimum tax has made this popular. They enact a politically popular tax break – say, home equity loan deductions – and they disallow it for AMT. So it’s there, but it’s useless.

8. Using the tax law to micromanage your life – Soda taxes. Insulation tax credits. Tax breaks for riding bikes to work. Will anybody ride a bike to work in Des Moines in February because of a $25 tax break? The tax law is full of… this sort of thing.

7. Issuing assessments based on pretend numbers – This has become popular among the states, and at least one academic thinks it should become a national policy.

6. Economic Development Credits – Where the state economic development geniuses take your money to lure and subsidize your competitors. It’s like taking your wife’s purse to the bar to finance your pick-up efforts – the girls aren’t impressed.

5. Film tax credits – If there is a stupider approach to economic development than throwing money at Hollywood, at least this side of North Korea, it must be bipartisan.

4. Sitting on your tax refunds – The states have spent so much of your money that they don’t want to pay what they owe you. When they pay their public employees before they pay what they owe you, it shows where you rank.

3. AGI-based deduction and credit phaseouts – Almost every moronic new piddly tax break goes away as adjusted gross income goes up, whimsically embedding marginal rate spikes all over the tax code.

2. Shooting Jaywalkers – Sometimes the tax law has horrible penalties for trivial, but politically convenient, violations. The 50% of your bank balance FBAR penalty, the $10,000 automatic penalty for late international form reporting, and the insane Section 409A penalties for deferred compensation foot-faults are the kind of penalties that are almost perfectly designed to hammer honesty and reward sneakiness.

1. Expiring provisions – This cynical game enacts popular provisions (see AMT patch and research credit) one year at a time, so that the budgeters don’t have to count the real 5-year cost. The congresscritters, of course, have no intention of letting these things expire, and they often enact foolish permanent tax changes to fund another temporary extension.

Sadly, there’s one key difference between tax policy scams and the Dirty Dozen Tax Scams. You can go to jail if you use a Dirty Dozen Tax Scam, but if you use a dirty dozen tax policy scam, you just stay in Congress forever and ever, amen.

What Are Your Taxes Buying Hollywood?

The former head of the Iowa Film Office was charged this week with “unfelonious misconduct in office” for his role in a scandal in which filmmakers bought themselves everything from featherbeds to Benzes with money advanced by the taxpayers of Iowa.

The Hawkeye State fell big time for the film credit fad that swept the country in recent years. Iowa had two 25% tax credits, one for filmmakers and one for investors. As interpreted by Mr. Wheeler (but not the Attorney General), the credits together could add up to 50% of film costs incurred in state, making it perhaps the most generous such giveaway in the country.

Better yet, the credits are transferable, so filmmakers can sell them at a discount to raise money. The program had no caps, meaning that Iowa could give away money as fast as Hollywood could spend it.


The entire program was managed by Mr. Wheeler, almost by himself. And did he ever manage it. According to the Iowa Attorney General:

Defendant Wheeler permitted filmmakers… to utilize “payments in kind” including “services in kind” in support of claimed expenditures for tax credits. Under defendant Wheeler’s direction, Iowa’s film program became one of the few, if not the only, state film incentive program in the nation to allow credit for “services in kind.”…Examples included “sponsorship agreements” in which intangible assets (such as reciprocal web links, product placement and marketing agreements) were traded with no money changing hands. These non-cash “expenditures” sometimes constituted the majority of the filmmakers entire alleged budget.

For a brief glitzy moment, Iowa was overrun with film crews and starlets helping themselves to a bountiful harvest.

The party ended last fall with revelations that Iowans helped buy a Mercedes and a Land Rover for a producer via film credits. Mr. Wheeler lost his job, and now he stands charged with a “serious misdemeanor.” Two filmmakers are charged with felony theft for inflating their expenses while claiming credits.

But if Mr. Wheeler is criminally inept, what about the bosses that left him alone and unsupervised to give away over $30 million so far? And what about the 147 legislators — out of 150 — who thought it would be a good idea to give Hollywood a blank check? And you thought “Music Man” was fiction.

But lest you think too badly about the rubes in Iowa, forty-four states are giving taxpayer money to Hollywood. Chances are that your legislator is taking money from you and giving it to those nice Hollywood people. Remember that next time your legislator says you aren’t paying enough taxes.