I've been in a three year battle with the IRS over Section 181 deductions taken in 2011 and 2012 for TV show pilots I produced and funded. The Section 181 deduction lets the investor take a 100% deduction in the year the show is filmed rather than amortize the amount over 5 years. It was part of the 2004 Job Creation Act passed by Congress.
The IRS attorney says i am not qualified for various preposterous reasons such as I was not materially involved in the production, we used the 'investment' in the contracts, I was only part owner of some(50% to 90%), a supposed discrepancy as to when I told my tax accountant I was doing this as if I have to ask him permission to be a television producer!, said i didn't keep a logbook of exactly what I did each day for the shows!, etc. All these are invalid reasons for disqualifying someone from the 181 deduction. I know because I have talked to lawyers from the Los Angeles area who are experts in entertainment law. I didn't hire them as I am 400 miles away from LA. I used a local firm here in the Bay area.
All the reasons he gave as I said are invalid but my position would need to be supported by affadavits from people that know i was materially involved(to the tune of 2200 hours from July 1 2011 to Dec. 31 2012. Only 500 hours a year is required to be materially involved. Also affadavits from other peple to support the other points above. Trouble is the IRS attorney sprung all this on me last Thursday. There was to be a trial Monday but there was no way could get affadavits from a dozen people in three days over the weekend. So he forced me to agree to a settlement since i would have no way to support my position at a trial without calling witnesses and affadavits.
Further research on my part this weekend seems to indicate the IRS attorney may be guilty of extortion under California law. He knowingly gave false information to my attorneys to induce fear in me to sign a public document or in this case agree through my attorney which costs me much money. If not extortion certainly Unethical behavior? What think you fellow Let's Run attorneys out there?
One more point to get the 100% deduction for Section 181 the money used must be from passive income if you are not materially involved. If you use active income you must be involved to the tune of 100 hours for each project or 500 hours per year if there are multiple projects. In this case there were 13 shows. All the money i put in was from passive income, besides i was as i said materially involved to 2,200 hours.
Thanks for any serious responders!