To amend the Internal Revenue Code of 1986 to encourage the production of independent motion picture films in the United States.

Summary: Independent Film Small Business Job Creation Act of 2004 - Amends the Internal Revenue Code to allow a tax deduction for expenditures relating to the production, promotion and distribution of U.S. independent motion picture films with budgets between $2 and $20 million (adjusted for inflation). Requires that not less than 95 percent of the wages or self-employment income paid for producing such films be for services provided within the United States or its possessions. Requires the recapture as income of amounts deducted if a production company ceases to qualify as an independent film production company.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Independent Film Small Business Job 
Creation Act of 2004''.

SEC. 2. DEDUCTION FOR INDEPENDENT FILM PRODUCTION INVESTMENTS.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to itemized deduction for 
individuals and corporations) is amended by adding at the end the 
following new section:

``SEC. 199. INDEPENDENT FILM PRODUCTION INVESTMENTS.

    ``(a) Allowance of Deduction.--
            ``(1) In general.--In the case of a taxpayer who holds a 
        qualified investment during any portion of the taxable year, 
        there shall be allowed as a deduction for the taxable year an 
        amount equal to the applicable percentage of the qualified 
        expenditures relating to such investments.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage shall be determined on the basis 
        of the amount which bears the same ratio to the qualified 
        expenditures made during the portion of the taxable year 
        referred to in paragraph (1) as the amount of the taxpayer's 
        qualified investment in the eligible independent film 
        production entity bears to the aggregate qualified investment 
        in such entity.
    ``(b) Qualified Expenditures.--For purposes of this section--
            ``(1) In general.--The term `qualified expenditures' means 
        amounts paid or incurred by an eligible independent film 
        production entity for preproduction, production, and post-
        production of a qualified motion picture film.
            ``(2) Post production.--The term `post-production' means, 
        with respect to any motion picture film, distribution and 
        promotion of such film.
            ``(3) Denial of double benefit.--Except as provided by 
        subsection (a), qualified expenditures shall be disregarded in 
        determining--
                    ``(A) the adjusted basis of any property held at 
                the entity level, and
                    ``(B) any deduction allowed at the entity level or 
                at the partner or similar level.
    ``(c) Qualified Investment.--For purposes of this section--
            ``(1) In general.--The term `qualified investment' means 
        any equity investment in an eligible independent film 
        production entity if--
                    ``(A) such investment is acquired by the taxpayer 
                at its original issue (directly or through an 
                underwriter) solely in exchange for cash,
                    ``(B) substantially all of such cash is used by the 
                eligible independent film production entity for 
                qualified expenditures, and
                    ``(C) such investment is designated to be used for 
                preproduction, production, and post-production of a 
                qualified motion picture film by the eligible 
                independent film production entity.
            ``(2) Treatment of subsequent purchasers.--The term 
        `qualified investment' shall include any equity investment 
        which would (but for paragraph (1)(A)) be a qualified 
        investment in the hands of the taxpayer if such investment was 
        a qualified investment in the hands of a prior holder.
            ``(3) Redemptions.--A rule similar to the rule of section 
        1202(c)(3) shall apply for purposes of this subsection.
            ``(4) Equity investment.--The term `equity investment' 
        means--
                    ``(A) any stock (other than nonqualified preferred 
                stock as defined in section 351(g)(2)) in an entity 
                which is a corporation, and
                    ``(B) any capital interest in an entity which is a 
                partnership.
    ``(d) Eligible Independent Film Production Entity.--
            ``(1) In general.--The term `eligible independent film 
        production entity' means any domestic corporation or 
        partnership (and any person related to such corporation or 
        partnership)--
                    ``(A) which is organized and operated for the 
                primary purpose of producing a qualified motion picture 
                film outside the formal studio structure, and
                    ``(B) which takes such film into preproduction, 
                production, and post production through financial 
                funding of its own money or assets, private investors, 
                financial institutions, guarantees, presale advances, 
                or distribution contracts.
            ``(2) Related person.--For purposes of paragraph (1), a 
        person is a related person to another person if--
                    ``(A) the relationship between such persons would 
                result in a disallowance of losses under section 267 or 
                707(b), or
                    ``(B) such persons are members of the same 
                controlled group of corporations (as defined in section 
                1563(a), except that `more than 50 percent' shall be 
                substituted for `at least 80 percent' each place it 
                appears therein).
            ``(3) Release of film not taken into account.--For purposes 
        of paragraph (1), whether a motion picture film is released 
        theatrically, directly to video cassette, DVD, or any other 
        format, television or cable programming movie-of-the-week, 
        miniseries, or pilot production shall not be taken into 
        account.
    ``(e) Qualified Motion Picture Film.--For purposes of this 
section--
            ``(1) In general.--The term `qualified motion picture film' 
        means a motion picture film--
                    ``(A) the budget of which is greater than 
                $2,000,000 and less than $20,000,000, and
                    ``(B) not less than 95 percent of the wages or 
                self-employment income paid or incurred for producing 
                such film (including the preproduction, production, and 
                post-production stages) is for services provided within 
                the United States or any of its possessions.
            ``(2) Exception.--The term `qualified motion picture film' 
        shall not include any motion picture film which contains actual 
        sexually explicit conduct (as defined by section 2257(h)(1) of 
        title 18, United States Code.
            ``(3) Budget.--The budget for a motion picture film--
                    ``(A) shall not exceed the face amount of the 
                aggregate completion bonds issued with respect to the 
                motion picture film, and
                    ``(B) shall include the preproduction, production, 
                and post-production stages of producing such film.
            ``(4) Wages; self-employment income.--
                    ``(A) Wages.--The term `wages' has the meaning 
                given to such term by section 3121.
                    ``(B) Self-employment income.--The term `self-
                employment income' has the meaning given to such term 
                by section 1402.
            ``(5) Inflation adjustment.--In the case of a taxable year 
        after 2005, the dollar amounts contained in paragraph (1)(A) 
        shall each be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for such calendar year by 
                substituting `calendar year 2004' for `calendar year 
                1992' in subparagraph (B) thereof.
        Any increase under this subparagraph which is not a multiple of 
        $1,000 shall be rounded to the next lowest multiple of $1,000.
    ``(f) Recapture In Certain Cases.--
            ``(1) In general.--If, at any time during the 5-year period 
        beginning on the date of the original issue of a qualified 
        investment in a eligible independent film production entity, 
        there is a recapture event with respect to such investment, 
        then the tax imposed by this chapter for the taxable year in 
        which such event occurs shall be increased by the credit 
        recapture amount.
            ``(2) Recapture amount.--For purposes of paragraph (1), the 
        recapture amount is an amount equal to the sum of--
                    ``(A) the aggregate decrease in the deductions 
                allowed to the taxpayer under this chapter for all 
                prior taxable years which would have resulted if no 
                deduction had been determined under this section with 
                respect to such investment, plus
                    ``(B) interest at the underpayment rate established 
                under section 6621 on the amount determined under 
                subparagraph (A) for each prior taxable year for the 
                period beginning on the due date for filing the return 
                for the prior taxable year involved.
        No deduction shall be allowed under this chapter for interest 
        described in subparagraph (B).
            ``(3) Recapture event.--For purposes of paragraph (1), 
        there is a recapture event with respect to an equity investment 
        in a eligible independent film production entity if--
                    ``(A) such entity ceases to be a eligible 
                independent film production entity,
                    ``(B) the proceeds of the investment cease to be 
                used as required of subsection (c)(1)(B), or
                    ``(C) such investment is redeemed by such entity.
            ``(4) Special rule.--Any increase in tax under this 
        subsection shall not be treated as a tax imposed by this 
        chapter for purposes of section 55.
    ``(g) Basis Reduction.--The basis of any qualified investment shall 
be reduced by the amount of any deduction determined under this section 
with respect to such investment. This subsection shall not apply for 
purposes of sections 1202, 1400B, and 1400F.
    ``(h) Election to have credit not apply.--A taxpayer may elect to 
have this section not apply for any taxable year.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section, including 
regulations--
            ``(1) which prevent the abuse of the purposes of this 
        section, and
            ``(2) which impose appropriate reporting requirements.''.
    (b) Conforming Amendment.--Subsection (a) of section 1016 of such 
Code is amended by striking ``and'' at the end of paragraph (27), by 
striking the period at the end of paragraph (28) and inserting ``; 
and'', and by adding at the end the following new paragraph:
            ``(29) to the extent provided in section 199(g).''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of such Code is amended by adding at the end 
the following new item:

                              ``Sec. 199. Independent film production 
                                        investments.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to investments made after December 31, 2004.