Hollywood unions pan ruling on tax break

Hollywood unions criticized the Internal Revenue Service on Friday over a ruling they say will hurt efforts to curb runaway production to Canada and other countries.

The dispute involves a provision in the American Jobs Creation Act of 2004 that allows producers to deduct costs for films and TV shows that are shot mostly in the United States with budgets not exceeding $15 million.

A coalition of unions said the IRS had undermined the incentive by stipulating that profit participation arrangements and residual payments be counted as production costs.

Because those items are based on sales and profits that are difficult to gauge during production, filmmakers will be reluctant to take the deduction, the unions argue.

“We are extremely disappointed with today’s ruling, which we believe undermines the intent of the production incentive,” said a joint statement from the Directors Guild of America, the International Alliance of Theatrical Stage Employees and the Screen Actors Guild.

Treasury Department spokeswoman Jennifer Zuccarelli said: “We invited public comment and feedback to help us ensure that we interpreted the statute properly.”

Hollywood unions lobbied heavily for the tax measure to help counter the generous tax sweeteners that many foreign countries use to lure productions.

Few filmmakers have taken advantage of the tax break, however, largely because of confusion over the issue of residuals and participation deals.

*

richard.verrier@latimes.com