I 

108TH CONGRESS 

2D SESSION H. R. 4736 

To amend the Internal Revenue Code of 1986 to encourage the production 

of independent motion picture films in the United States. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 25, 2004 

Ms. MCCARTHY of Missouri (for herself, Mr. RANGEL, Mr. BURTON of Indiana, Ms. SLAUGHTER, Mr. DOGGETT, Mr. KUCINICH, Mr. SCHIFF, Mr. 

MCINTYRE, Mr. MCGOVERN, and Ms. MILLENDER-MCDONALD) introduced the following bill; which was referred to the Committee on Ways 

and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to encourage 

the production of independent motion picture films in 

the United States. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Independent Film 

5 Small Business Job Creation Act of 2004’’. 
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1 SEC. 2. DEDUCTION FOR INDEPENDENT FILM PRODUCTION 

2 INVESTMENTS. 

3 (a) IN GENERAL.—Part VI of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 (relating to 

5 itemized deduction for individuals and corporations) is 

6 amended by adding at the end the following new section: 

7 ‘‘SEC. 199. INDEPENDENT FILM PRODUCTION INVEST8 MENTS. 

9 ‘‘(a) ALLOWANCE OF DEDUCTION.— 

10 ‘‘(1) IN GENERAL.—In the case of a taxpayer 

11 who holds a qualified investment during any portion 

12 of the taxable year, there shall be allowed as a de13 duction for the taxable year an amount equal to the 

14 applicable percentage of the qualified expenditures 

15 relating to such investments. 

16 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

17 of paragraph (1), the applicable percentage shall be 

18 determined on the basis of the amount which bears 

19 the same ratio to the qualified expenditures made 

20 during the portion of the taxable year referred to in 

21 paragraph (1) as the amount of the taxpayer’s quali22 fied investment in the eligible independent film pro23 duction entity bears to the aggregate qualified in24 vestment in such entity. 

25 ‘‘(b) QUALIFIED EXPENDITURES.—For purposes of 

26 this section— 
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1 ‘‘(1) IN GENERAL.—The term ‘qualified expend2 itures’ means amounts paid or incurred by an eligi3 ble independent film production entity for 

4 preproduction, production, and post-production of a 

5 qualified motion picture film. 

6 ‘‘(2) POST PRODUCTION.—The term ‘post-pro7 duction’ means, with respect to any motion picture 

8 film, distribution and promotion of such film. 

9 ‘‘(3) DENIAL OF DOUBLE BENEFIT.—Except as 

10 provided by subsection (a), qualified expenditures 

11 shall be disregarded in determining— 

12 ‘‘(A) the adjusted basis of any property 

13 held at the entity level, and 

14 ‘‘(B) any deduction allowed at the entity 

15 level or at the partner or similar level. 

16 ‘‘(c) QUALIFIED INVESTMENT.—For purposes of this 

17 section— 

18 ‘‘(1) IN GENERAL.—The term ‘qualified invest19 ment’ means any equity investment in an eligible 

20 independent film production entity if— 

21 ‘‘(A) such investment is acquired by the 

22 taxpayer at its original issue (directly or 

23 through an underwriter) solely in exchange for 

24 cash, 
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1 ‘‘(B) substantially all of such cash is used 

2 by the eligible independent film production enti3 ty for qualified expenditures, and 

4 ‘‘(C) such investment is designated to be 

5 used for preproduction, production, and post6 production of a qualified motion picture film by 

7 the eligible independent film production entity. 

8 ‘‘(2) TREATMENT OF SUBSEQUENT PUR9 CHASERS.—The term ‘qualified investment’ shall in10 clude any equity investment which would (but for 

11 paragraph (1)(A)) be a qualified investment in the 

12 hands of the taxpayer if such investment was a 

13 qualified investment in the hands of a prior holder. 

14 ‘‘(3) REDEMPTIONS.—A rule similar to the rule 

15 of section 1202(c)(3) shall apply for purposes of this 

16 subsection. 

17 ‘‘(4) EQUITY INVESTMENT.—The term ‘equity 

18 investment’ means— 

19 ‘‘(A) any stock (other than nonqualified 

20 preferred stock as defined in section 351(g)(2)) 

21 in an entity which is a corporation, and 

22 ‘‘(B) any capital interest in an entity 

23 which is a partnership. 

24 ‘‘(d) ELIGIBLE INDEPENDENT FILM PRODUCTION

25 ENTITY.— 
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1 ‘‘(1) IN GENERAL.—The term ‘eligible inde2 pendent film production entity’ means any domestic 

3 corporation or partnership (and any person related 

4 to such corporation or partnership)— 

5 ‘‘(A) which is organized and operated for 

6 the primary purpose of producing a qualified 

7 motion picture film outside the formal studio 

8 structure, and 

9 ‘‘(B) which takes such film into 

10 preproduction, production, and post production 

11 through financial funding of its own money or 

12 assets, private investors, financial institutions, 

13 guarantees, presale advances, or distribution 

14 contracts. 

15 ‘‘(2) RELATED PERSON.—For purposes of para16 graph (1), a person is a related person to another 

17 person if— 

18 ‘‘(A) the relationship between such persons 

19 would result in a disallowance of losses under 

20 section 267 or 707(b), or 

21 ‘‘(B) such persons are members of the 

22 same controlled group of corporations (as de23 fined in section 1563(a), except that ‘more than 

24 50 percent’ shall be substituted for ‘at least 80 

25 percent’ each place it appears therein). 
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1 ‘‘(3) RELEASE OF FILM NOT TAKEN INTO AC2 COUNT.—For purposes of paragraph (1), whether a 

3 motion picture film is released theatrically, directly 

4 to video cassette, DVD, or any other format, tele5 vision or cable programming movie-of-the-week, 

6 miniseries, or pilot production shall not be taken 

7 into account. 

8 ‘‘(e) QUALIFIED MOTION PICTURE FILM.—For pur9 poses of this section— 

10 ‘‘(1) IN GENERAL.—The term ‘qualified motion 

11 picture film’ means a motion picture film— 

12 ‘‘(A) the budget of which is greater than 

13 $2,000,000 and less than $20,000,000, and 

14 ‘‘(B) not less than 95 percent of the wages 

15 or self-employment income paid or incurred for 

16 producing such film (including the 

17 preproduction, production, and post-production 

18 stages) is for services provided within the 

19 United States or any of its possessions. 

20 ‘‘(2) EXCEPTION.—The term ‘qualified motion 

21 picture film’ shall not include any motion picture 

22 film which contains actual sexually explicit conduct 

23 (as defined by section 2257(h)(1) of title 18, United 

24 States Code. 
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1 ‘‘(3) BUDGET.—The budget for a motion pic2 ture film— 

3 ‘‘(A) shall not exceed the face amount of 

4 the aggregate completion bonds issued with re5 spect to the motion picture film, and 

6 ‘‘(B) shall include the preproduction, pro7 duction, and post-production stages of pro8 ducing such film. 

9 ‘‘(4) WAGES; SELF-EMPLOYMENT INCOME.— 

10 ‘‘(A) WAGES.—The term ‘wages’ has the 

11 meaning given to such term by section 3121. 

12 ‘‘(B) SELF-EMPLOYMENT INCOME.—The 

13 term ‘self-employment income’ has the meaning 

14 given to such term by section 1402. 

15 ‘‘(5) INFLATION ADJUSTMENT.—In the case of 

16 a taxable year after 2005, the dollar amounts con17 tained in paragraph (1)(A) shall each be increased 

18 by an amount equal to— 

19 ‘‘(A) such dollar amount, multiplied by 

20 ‘‘(B) the cost-of-living adjustment deter21 mined under section 1(f)(3) for such calendar 

22 year by substituting ‘calendar year 2004’ for 

23 ‘calendar year 1992’ in subparagraph (B) 

24 thereof. 
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1 Any increase under this subparagraph which is not 

2 a multiple of $1,000 shall be rounded to the next 

3 lowest multiple of $1,000. 

4 ‘‘(f) RECAPTURE IN CERTAIN CASES.— 

5 ‘‘(1) IN GENERAL.—If, at any time during the 

6 5-year period beginning on the date of the original 

7 issue of a qualified investment in a eligible inde8 pendent film production entity, there is a recapture 

9 event with respect to such investment, then the tax 

10 imposed by this chapter for the taxable year in 

11 which such event occurs shall be increased by the 

12 credit recapture amount. 

13 ‘‘(2) RECAPTURE AMOUNT.—For purposes of 

14 paragraph (1), the recapture amount is an amount 

15 equal to the sum of— 

16 ‘‘(A) the aggregate decrease in the deduc17 tions allowed to the taxpayer under this chapter 

18 for all prior taxable years which would have re19 sulted if no deduction had been determined 

20 under this section with respect to such invest21 ment, plus 

22 ‘‘(B) interest at the underpayment rate es23 tablished under section 6621 on the amount de24 termined under subparagraph (A) for each 

25 prior taxable year for the period beginning on 
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1 the due date for filing the return for the prior 

2 taxable year involved. 

3 No deduction shall be allowed under this chapter for 

4 interest described in subparagraph (B). 

5 ‘‘(3) RECAPTURE EVENT.—For purposes of 

6 paragraph (1), there is a recapture event with re7 spect to an equity investment in a eligible inde8 pendent film production entity if— 

9 ‘‘(A) such entity ceases to be a eligible 

10 independent film production entity, 

11 ‘‘(B) the proceeds of the investment cease 

12 to be used as required of subsection (c)(1)(B), 

13 or 

14 ‘‘(C) such investment is redeemed by such 

15 entity. 

16 ‘‘(4) SPECIAL RULE.—Any increase in tax 

17 under this subsection shall not be treated as a tax 

18 imposed by this chapter for purposes of section 55. 

19 ‘‘(g) BASIS REDUCTION.—The basis of any qualified 

20 investment shall be reduced by the amount of any deduc21 tion determined under this section with respect to such 

22 investment. This subsection shall not apply for purposes 

23 of sections 1202, 1400B, and 1400F. 
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1 ‘‘(h) ELECTION TO HAVE CREDIT NOT APPLY.—A 

2 taxpayer may elect to have this section not apply for any 

3 taxable year. 

4 ‘‘(i) REGULATIONS.—The Secretary shall prescribe 

5 such regulations as may be appropriate to carry out this 

6 section, including regulations— 

7 ‘‘(1) which prevent the abuse of the purposes of 

8 this section, and 

9 ‘‘(2) which impose appropriate reporting re10 quirements.’’. 

11 (b) CONFORMING AMENDMENT.—Subsection (a) of 

12 section 1016 of such Code is amended by striking ‘‘and’’ 

13 at the end of paragraph (27), by striking the period at 

14 the end of paragraph (28) and inserting ‘‘; and’’, and by 

15 adding at the end the following new paragraph: 

16 ‘‘(29) to the extent provided in section 

17 199(g).’’. 

18 (c) CLERICAL AMENDMENT.—The table of sections 

19 for part VI of subchapter B of chapter 1 of such Code 

20 is amended by adding at the end the following new item: 

‘‘Sec. 199. Independent film production investments.’’. 

21 (d) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to investments made after Decem23 ber 31, 2004. 

Æ