Legal Question in Tax Law in California
Do advanced payments made to a corporation for a film have to be picked up as in
We have an individual who has an S corporation for which he is the only shareholder. He has been developing a movie which he hopes to eventually direct. A big motion picture company wishes to fund half of the film and is offering $500,000 as an advance payment. This money will be used to pay for expenses incurred in developing the film. Any remaining funds can be kept by the individual. My question is, how do we avoid having the $500,000 picked up as income in the year it is given to us? The film is likely to cost more than the $1,000,000 and we expect all of the advance payment to be used up over the next couple of years. I have heard about rev proc 2004-34 which seems to insinuate there is a way around this, but I am uncertain. If anyone can help me out that would be great! Thanks in advance!
1 Answer from Attorneys
Re: Do advanced payments made to a corporation for a film have to be picked up a
Without knowing any further specifics, you may (under Revenue Procedure 2004-34) be eligible to defer reporting your advanced payment as taxable income until next year.
While the period of income deferral is limited to one year, one of the most important aspects of Rev. Proc. 2004-34 is that it applies to all advance payments regardless of how far into the future the services will be performed.
Parts of Rev. Proc. 2004-34 are eligible to be implemented as an automatic consent method change for the 2003 taxable year with the 2003 tax return filing. Other parts of Rev. Proc. 2004-34 are only eligible for deferral using the advance consent method change procedures, meaning that such changes may not be implemented until the 2004 taxable year.
Please contact us if you have any questions regarding how to achieve the most tax-favored treatment for your transaction or regarding Rev. Proc. 2004-34 in general. We are an international law firm with experience in both domestic and international taxation of corporations and wealthy individuals.
Regards,
Yaphett K. Powell Esq.
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