INVESTMENT CREDIT IN THE CASE OF MOVIE AND TELEVISION FILMS.

SEC. 801. INVESTMENT CREDIT IN THE CASE OF MOVIE AND TELEVISION FILMS. (a) Special Rules for Movie and Television Films.— Section 48 (relating to definitions and special rules for purposes of the investment credit) is amended by redesignating subsection (k) as subsection (1) and by inserting after subsection (j) the following new subsection: “(k) Movie and Television Films.— “(1) Entitlement to credit.— “(A) In general.— A credit shall be allowable under section 38 to a taxpayer with respect to any motion picture film or video tape— “(i) only if such film or tape is new section 38 property (determined without regard to useful life) which is a qualified film, and “(ii) only to the extent that the taxpayer has an ownership interest in such film or tape. “(B) Qualified film defined.— For purposes of this subsection, the term ‘qualified film’ means any motion picture film or video tape created primarily for use as public entertainment or for educational purposes. Such term does not include any film or tape the market for which is primarily topical or is otherwise essentially transitory in nature. 90 STAT. 1592 “(C) Ownership interest.— For purposes of this subsection, a person’s ‘ownership interest’ in a qualified film shall be determined on the basis of his proportionate share of any loss which may be incurred with respect to the production costs of such film. “(2) Applicable percentage to be 66 ⅔.— Except as provided in paragraph (3), the applicable percentage under section –16(c)(2) for any qualified film shall be 66% percent. “(3) Election of 90-percent rule.— “(A) In general.— If the taxpayer makes an election under this paragraph, the applicable percentage under section 46 (c)(2) shall be determined as if the useful life of the film would have expired at the close of the first taxable year by the close of which the aggregate amount allowable as a deduction under section 167 would equal or exceed 90 percent of the basis of the film. “(B) Making of election.— An election under this paragraph shall be made at such time and in such manner as the Secretary may by regulations prescribe. Such an election shall apply for the taxable year for which it is made and for all subsequent taxable years and may be revoked only with the consent of the Secretary. “(C) Who may elect.— If for any prior taxable year paragraph (2) of this subsection applied to the taxpayer or any related business entity, or if for the taxable year paragraph (2) applies to any related business entity, an election under this paragraph may be made by the taxpayer only with the consent of the Secretary. “(D) Related business entity.— Two or more corporations, partnerships, trusts, estates, proprietorships, or other entities shall be treated as related business entities if 50 percent or more of the beneficial interest in each of such entities is owned by the same or related persons (taking into account only persons who own at least 10 percent of such beneficial interest). For purposes of this subparagraph, a person is a related person to another person if— “(i) such persons are component members of a controlled group of corporations (within the moaning of section 1563(a), except that section 1563(b)(2) shall not apply and except that ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears in section 1563(a)),or “(ii) the relationship between such persons would result in a disallowance of losses under section 267 or 707 (b), except that, for these purposes a family of an individual includes only his spouse and minor children. For purposes of this subparagraph, the term ‘beneficial interest’ means voting stock in the case of a corporation, profits interest or capital interest in the case of a partnership, or beneficial interest, in the case of a trust or estate. “(4) Predominant use test; qualified investment.— In the case of any qualified film— “(A) section 48(a)(2) shall not apply, and “(B) in determining qualified investment under section 46(c)(1), there shall be issued (in lieu of the basis of the property) an amount equal to the qualified United States production costs (as defined in paragraph (5)). 90 STAT. 1593 “(5) Qualified united states production costs.— “(A) In general.— For purposes of this subsection, the term ‘qualified United States production costs’ means with respect to any film— “(i) direct production costs allocable to the United Status, plus “(ii) if 80 percent or more of the direct production costs are allocable to the United States, all other production costs other than direct production costs allocable outside the United States. “(B) Production costs.— For purposes of this subsection, the teim ‘production costs’ includes— “(i) a reasonable allocation of general overhead costs, “(ii) compensation (other than participations described in clause (vi)) for services performed by actors, production personnel, directors, and producers, “(iii) costs of ‘first’ distribution of prints, “(iv) the cost of the screen rights and other material being filmed, “(v) ‘residuals’ payable under contracts with labor organizations, and “(vi) participations payable as compensation to actors, production personnel, directors, and producers. Participations in all qualified films placed in service by a tax-payer during a taxable year shall be taken into account under clause (vi) only to the extent of the lesser of 25 percent of each such participation or 12 1/2 percent of the aggregate qualified United States production costs (other than costs described in clauses (v) and (vi) of this subparagraph) for such films, but taking into account for both the 25 percent limit and 12 1/2 percent limit no more than $1,000,000 in participations for any one individual with respect to any one film. For purposes of this subparagraph (other than clauses (v) and (vi) and the preceding sentence), costs shall be taken into account only if they are capitalized. “(C) Direct production costs.— For purposes of this paragraph, the term ‘direct production costs’ does not include items referred to in clause (i), (iv), (v), or (vi) of subparagraph (B). The term also does not include advertising and promotional costs and such other costs as may be provided in regulations prescribed by the Secretary. “(D) Allocation of direct production costs.— For purposes of this paragraph— “(i) Compensation for services performed shall be allocated to the country in which the services are performed, except that payments to United States persons for services performed outside the United States shall be allocated to the United States. For purposes of the preceding sentence, payments to an electing small business corporation (within the meaning of section 1371) or a partnership shall be considered payments to a United States person only to the extent that such payments are included in the gross income of a United States person other than an electing small business corporation or partnership. 90 STAT. 1594 “(ii) Amounts for equipment and supplies shall be allocated to the country in which, with respect to the production of the film, the predominant use occurs. “(iii) All other items shall be allocated under regulations prescribed by the Secretary which are consistent with the allocation principle set forth in clause (ii). “(6) United states.— For purposes of this subsection, the term ‘United States’ includes the possessions of the United States.” (b) Overestimation of Useful Life and Dispositions Where 96 Percent Pule Applies.— Section 47(a) (relating to certain dispositions, etc., of section 38 property) is amended by adding after paragraph (6) the following new paragraph: “(7) Motion picture films and video tapes.— “(A) Disposition where depreciation exceeds so percent of basis or cost.— A qualified film (within the meaning of section 48 (k)(1)(B)) which has an applicable percentage determined under section 48(k)(3) shall cease to be section 38 pro]iertv with respect to the taxpayer at the close of the first day on which the aggregate amount allowable as a deduction under section 167 equals or exceeds 90 percent of the basis or cost of such film (adjusted for any partial dispositions). “(B) Other dispositions.— In the case of a disposition of the exclusive right to display a qualified film which has an applicable percentage determined under section 48(k)(3) in one or more mediums of publication or exhibition in one or more specifically defined geographical areas over the remaining initial period of commercial exploitation of the film or tape in such geographical areas, the taxpayer shall be considered to have disposed of all or part of such film or tape and shall recompute the credit earned on all of his basis or cost or on that part of the basis or cost properly allocable to that part of the film or tape disposed of in the case of an affiliated group of corporations, a transfer within the affiliated group shall not be treated as a disposition until there is a transfer outside the group. For purposes of the preceding sentence, the term ‘affiliated group’ has the meaning given to such term by section 1504 (determined as if section 1504(b) did not include paragraph (3) thereof). For purposes of this paragraph, section 1504(a) shall be applied by substituting ‘50 percent’ for ‘80 percent’ each place it appears.”. (c) Alternative Methods of Com putt no Credit for Past Periods.— (1) General rule for determining useful life, predominant foreign use, etc.— In the case of a qualified film (within the meaning of section 48(k)(1)(B) of the Internal Revenue Code of 1954) placed in service in a taxable year beginning before January 1, 1975, with respect to which neither an election under paragraph (2) of this subsection nor an election under subsection (e)(2) applies— (A) the applicable percentage under section 46(c)(2) of such Code shall be determined as if the useful life of the film would have expired at the close of the first taxable year by the close of which the aggregate amount allowable as a 90 STAT. 1595deduction under section 167 of such Code would equal or exceed 90 percent of the basis of such property (adjusted for any partial dispositions), (B) for purposes of section 46(c)(1) of such Code, the basis of the property shall be determined by taking into account the total production costs (within the meaning of section 48(k)(5)(B) of such Code), (C) for purposes of section 48(a)(2) of such Code, such film shall be considered to be used predominantly outside the United States in the first taxable year for which 50 percent or more of the gross revenues received or accrued during the taxable year from showing the film were received or accrued from showing the film outside the United States, and (D) Section 47(a)(7) of such Code shall apply. (2) Election of 40-percent method.— (A) In general.— A taxpayer may elect to have this paragraph apply to all qualified films placed in service during taxable years beginning before January 1, 1975 (other than films to which an election under subsection (e)(2) of this section applies). (B) Effect of election.— If the taxpayer makes an election under this paragraph, then section 48 (k) of the Internal Revenue Code of 1954 shall apply to all qualified films described in subparagraph (A) with the following modifications: (i) subparagraph (B) of paragraph (4) shall not apply, but in determining qualified investment under section 46(c)(1) of such Code, there shall be used (in lieu of the basis of such property) an amount equal to 40 percent of the aggregate production costs (within the meaning of paragraph (5)(B) of such section 48(k)), (ii) paragraph (2) shall be applied by substituting “100 percent” for “66% percent”, and (iii) paragraph (3) and paragraph (5)(other than subparagraph (B)) shall not apply. (C) Rules relating to elections.— An election under this paragraph shall be made not later than the day which is 6 months after the date of the enactment of this Act and shall be made in such manner as the Secretary of the Treasury or his delegate shall by regulations prescribe. Such an election may be revoked only with the consent of the Secretary of the Treasury or his delegate. (D) The taxpayer must consent to join in certain proceedings.— No election may be made under this paragraph or subsection (e)(2) by any taxpayer unless he consents, under regulations prescribed by the Secretary of the Treasury or his delegate, to treat the determination of the investment credit allowable on each film subject to an election as a separate cause of action, and to join in any judicial proceeding for determining the person entitled to, and the amount of, the credit allowable under section 38 of the Internal Revenue Code of 1954 with respect to any film covered by such election. (3) Election to have credit determined in accordance with previous litigation.— (A) In general.— A taxpayer described in subparagraph (B) may elect to have this paragraph apply to all films (whether or not qualified) placed in service in taxable years 90 STAT. 1596beginning before January 1, 1975, and with respect to which an election under subsection (e)(2) is not made. (B) Who may elect.— A taxpayer may make an election under this paragraph if he has filed an action in any court of competent jurisdiction, before January 1, 1976, for a determination of such taxpayer’s rights to the allowance of a credit against tax under section 38 of the Internal Revenue Code of 1954 for any taxable year beginning before January 1, 1975, with respect to any film. (C) Effect of election.— If the taxpayer makes an election under this paragraph— (i) paragraphs (1) and (2) of this subsection, and subsection (d) shall not apply to any film placed in service by the, taxpayer, and (ii) subsection 48(k) of the Internal Revenue Code of 1954 shall not apply to any film placed in service by the taxpayer in any taxable year beginning before January 1, 1975, and with respect to which an election under subsection (e)(2) is not made, and the right of the taxpayer to the allowance of a credit against tax under section 38 of such Code with respect to any film placed in service in any taxable year beginning before January 1, 1975, and as to which an election under subsection (e)(2) is not made, shall be determined as though this section (other than this paragraph) has not been enacted. (D) Rules relating to elections.— An election under this paragraph shall be made not later than the day which is 90 days after the date of the enactment of this Act, by filing a notification of such election with the national office of the Internal Revenue Service. Such an election, once made, shall be irrevocable. (d) Entitlement to Credit.— Paragraph (1) of section 48(k) of the Internal Revenue Code of 1954 (relating to entitlement to Credit) shall apply to any motion picture film or video tape placed in service in any taxable year beginning before January 1, 1975. (e) Effective Dates.— (1) In general.— The amendments made by subsections (a) and (b) shall apply to taxable years beginning after December 31, 1974. (2) Election may also apply to property described in section 50(a).— At the election of the taxpayer, made within 1 year after the date of the enactment of this Act in such manner as the Secretary of the Treasury or his delegate may by regulations prescribe, the amendments made by subsections (a) and (b) shall also apply to property which is property described in section 50(a) of the Internal Revenue Code of 1954 and which is placed in service in taxable years beginning before January 1, 1975.